Trump doesn’t only target Germany, aims to crack the entire EU

NATO Summit in Brussels, 11-12 July 2018. Yesterday the American President Donald Trump and the Secretary General Jens Soltenberg faced the press ahead of their breakfast meeting at the Alliance’s headquarters. (NATO audiovisual services photo).

The EU-US trade war is now deeply dividing Europe between those who export cars to America and those who don’t. Germany and France have for quite some time been at odds, regarding the handling of the latest Donald Trump threat to impose import super-tariffs on cars assembled in Europe. Now, however, their differences are becoming uncontrollable. The German media openly accuse Paris for not caring enough about Berlin’s troubles haunting its more competitive industry, which supports the welfare of the entire country, the automotive sector. On this account, Berlin favors concessions to the US, while Paris longs for tough collective retaliation.

France doesn’t export cars to America, while last year 494,000 automobiles assembled in Germany were sold in the US. The US President is reportedly furious seeing Mercedes, BMWs and Audis speeding on 5th Avenue. There is a story going about in New York saying that Trump has vowed to see the day when no German cars will be driving around the town main street all over America.

Targeting Germany

In the latest incident, yesterday, the US President once more attacked Germany for working with Russia, to build the Nord Stream II gas pipeline supplying the country with Russian natural gas. In the presence of NATO Secretary-General, Jens Stoltenberg, and ahead of the NATO Summit in Brussels, he told reporters “So we’re supposed to protect you (Germany) against Russia and you pay billions of dollars to Russia and I think that’s very inappropriate….Germany will have almost 70 percent of their country controlled by Russia with natural gas. You tell me, is that appropriate?” Obviously, Trump would have preferred Germany to buy American natural gas transported over the North Atlantic.

Things, however, are not that straightforward. The Americans have understood the EU is going to have a hard time responding collectively in force to their possible new round of tariffs – after the initial US levies on imports of steel and aluminum – this time to be imposed by Washington on European-assembled cars.

Cars, NATO and money

Cars are not the only topic Donald Trump is furious about regarding Germany. He has publicly asked the German Chancellor Angela Merkel to pay NATO and the US hundreds of billions of dollars in arrears. He told her that for decades her country failed to spend 2% of its GDP on armaments. So, by spending less the difference is owed to NATO and the US.

The Americans allege they cover 80% of NATO’s costs, a percentage widely contested by the Europeans, who insist this is only 15%. For one thing, it’s practically impossible to calculate this percentage even with a large margin of error. The relevant necessary assumptions are wildly massive, regarding who was serviced and to what extent from the existence of NATO, and who contributed what to the functioning of the Alliance. It’s practically impossible, then, to calculate NATO costs and benefits in an acceptable and reliable way.

Targeting EU’s unity

Whatever the truth is about who pays and who benefits from NATO, the hot issue is currently the automotive sector of Germany. In any case, the Americans are using both subjects to corner the Europeans. Yesterday and today, Wednesday and Thursday 11 and 12 July, NATO holds its Summit, and the US President, being in practice and in theory the supreme leader of the North Atlantic military alliance, will preside over the gathering. What he is going to say there must be of paramount importance and Trump has already given more than one hint about it. According to Reuters, at a rally last week he told his supporters, “I’m going to tell NATO: You’ve got to start paying your bills. The United States is not going to take care of everything” then he added “They kill us on trade.”

Obviously, Washington is going to play hard on both pitches, NATO and automotive, against the Europeans. Trump has repeatedly warned about his new import tariff of 20% on European cars. So, the NATO Summit will also hear Trump’s trade challenges against the EU, as if the Alliance was an international trade conference. The American aggression though this time is well organized. Last Wednesday, the US Ambassador to Germany Richard Grenell summoned the executives of the major German automotive firms to his office for a secret meeting.

An offer you cannot refuse

What he told them was quite unexpected. Grenell revealed Washington is prepared to propose the abolishment of all tariffs and non-tariff barriers on imports of cars by both sides. According to Handelsblatt Global – a reliable German English language online service – the CEOs of Daimler, Volkswagen and BMW were taken aback, considering this as a ‘dream offer’, given the so far aggressive stance of the White House against the German car industry.

Grenell didn’t go into details, regarding the World Trade Organization (WTO) rules or which countries are to be included. As usual, the Americans don’t care much about the rules regulating international trade nor do they mind that Germany belongs to the EU, and cannot have her own exclusive trade deals, with third countries. The ambassador just threw a firecracker and probably meant a bilateral agreement between Germany or even the entire EU and the US, in breach of any WTO practice and order. In reality, he wants to test the EU’s unity. Still, the Germans appeared to believe the American trick.

Swallowing the American bait

So, the German Press rushed to comment that France wouldn’t discuss such a proposal for two reasons. Firstly, because she doesn’t export cars to the US, so the abolishment of all tariffs doesn’t offer Paris any gains. Secondly, and most importantly, the abolishment of all tariffs on all imports of cars has to be across the directory for all countries including Japan, South Korea and other competitive car producers like China. The rules of WTO foresee that.

All the Asian car producers have already built a strong presence in the European market and will take good advantage of an EU trade disarmament. Such an option, though, could harm the less competitive French car industry, or at least this is what the German commentators think.

Testing the Franco-German axis

No doubt then, the Grenell proposal is considered more of a test of the unity of the European Union and of the Franco-German partnership. Any trade agreement concerning cars has to be according to the WTO rules, at least as it concerns the European Union.

The German car producers cannot have it their way with the Americans, and still continue be an integral part of the European edifice. Not without reason, the French minister for Finance Bruno Le Maire said “If tomorrow there is an increase in tariffs, like in the car industry, our reaction should be united and strong to show that Europe is a united and sovereign power”. Germany doesn’t like that.

Berlin has to think deep

No doubt then, Berlin seems disposed to make concessions to the Americans in order to avoid the possible extra tariffs on its car exports. However, those concessions would certainly hurt other EU countries more. The US demands, for example, free access to the huge EU agro-food market, where France will be the losing party. Is Berlin ready to negotiate such scenarios?

If Germany insists in protecting her automotive sector, to the detriment of other EU member states, it will be the last day of the European Union. After the Britons, the Germans must understand that the EU is not only for the sunny days. It cannot protect the interests of one member state only; it has to cater for all otherwise it cannot go on.

 

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