Security spillovers from Trump’s trade wars: China, Germany prepare for global disorder

President Donald J. Trump addresses the 73rd session of the U.N. General Assembly Tuesday, September 25, 2018, at the United Nations Headquarters in New York. (Official White House Photo by Andrea Hanks).

US President Donald Trump’s aggressive trade strategy has now gone past the economic landscape and touched security issues. There are strong signs that next month’s security meeting between US and China may be cancelled. If this is the case, the two largest economies of the earth may enter uncharted waters.

Until now, they have been very closely related in many spheres, but the spillovers from the trade conflict are poisoning the entire spectrum of US-China complex interconnections. Many analysts say maybe the time of ‘decoupling’ between the two super powers has come.

From threats to action

The same is more or less true for the relations between US and Europe. For the time being, Washington has refrained from realizing its threat to punish EU assembled cars with tariffs of 20% to 25%. This eventuality has not disappeared though.

If Trump realizes it, Europe and, more precisely, Germany, an export oriented country, would consider it a direct hit to economic security. A latest study by the country’s most prestigious economic think tanks warns that an escalation in the trade dispute with the US would undermine Germany’s economic safety.

The German ‘wise economists’

The study is signed by the five most respected economic institutes. It’s the Ifo of Munich, DIW of Berlin, REI of Essen, IfW of Kiel and IWH of Halle. This network of economic and financial think tanks is closely related with the government, being chosen as chief advisors of the Berlin administration. They represent not only the main sectors of the country’s economy, but at the same time, they also express the main streams of economic thinking. Let’s dig into the spillovers of the shocking Trumpist plan, aimed at changing the global trade flows and unravelling globalization.

This year’s 73rd United Nations General Assembly at the Organization’s headquarters in New York, was very different than many dull previous ones. For one thing, the American President chose this most prominent tribune to air his trade strategy and dispel the doubts about his far reaching intentions. His obvious targets are China and Germany. Both countries seem to have taken the message.

An alarmed China

Last week, the occupant of the White House reproached Beijing of trying to interfere in the November congressional elections. The idea is that the Chinese response with new tariffs to the US trade aggression, is directed against American products originating from regions where Trumpism is politically strong. Soya is the most important item in this respect and China, by punishing the US exports, plans to redirect her supply sources to Brazil and other major producers. The cost to the Trump voting agricultural Midwest may be great. Reuters reports that US officials told the business news agency there comes “a new phase in an escalating campaign by Washington to put pressure on China”.

It seems the new American pressures on China have surpassed the trade constellation and have reached the dangerous security territory. Last week, Washington imposed sanctions on the Chinese military, related to its purchases of weapon systems from Russia. On top of that, Beijing is infuriated with the escalation of American backing to Taiwan. This independent island state is considered by Beijing as Chinese territory. During the past few years, the US had waned her backing of Taiwan’s independence, but it seems this is now changing.

The cautious Teutons

In the case of Germany, things have not reached such an explosive point, at least not yet. So far, the American tariffs on imports from Europe haven’t really hit this country. However, the Germans are cautious. They are alarmed with the Trump threats about imposing tariffs of 20% to 25% on imports of German cars. Furthermore, the US-Mexico trade agreement to replace NAFTA, indirectly punishes the German cars produced in Mexico when sold to the US.

Handelsblatt Global, the English language on line business newspaper saw the study drafted by the above mentioned five institutes. The text was presented to the Berlin administration last Thursday. It contained the following caution: “Any escalation of the trade conflict, leading to considerable tariff increases by the US on a broad front, is likely to trigger a severe recession in Germany and Europe”. It added, “President Donald Trump’s threat to impose tariffs on car imports from the EU would cost jobs and curb productivity and prosperity in Germany”.

Threatened welfare

Given the dependence of Germany’s welfare on exports, Berlin is vigilant with the abilities of the country producers to sell abroad. So, it goes without saying that Germany is preparing for the worse case scenario. This means paving the way for better relations with the opposite camp, which comprises Russia, China, Iran, Turkey and others. The controversial state visit of the Turkish President Recep Tayyip Erdogan to Germany last week, was probably in this line of the new German strategy. No question Berlin takes the American threats seriously, and is ready to change the way it reads the world map.

All in all, Trump’s trade wars are definitely bound to turn the world into a different, unpredictable and more dangerous place. The robust state of the US economy and the record capitalization of the New York Stock Exchange are some guarantees, the American economy will not lose in the new uncharted universe.

 

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