Title: Facing Trump: Germany's Perspective
Prepare for Trump's second term as US President, marked by threats of tariffs, with a united and robust European strategy. Germany, heavily reliant on the US as a destination for exports and LNG supply, must brace itself for a potential trade war at a time of economic stagnation. Economists advise readiness for negotiations, with a strong European economy as the best bargaining chip.
Monika Schnitzer, Chair of the Council of Economic Experts, suggests that Germany should put its economy in order, strengthen Europe, and act decisively to secure a favorable negotiating position. A divided EU could allow Trump to exploit a divide-and-rule strategy, so unity among European members is crucial.
Europe needs a calculated response, balancing the threat of retaliatory measures against US exports with incentives to maintain a positive relationship – like additional LNG and weapons purchases from the US, if tariffs against European products are waived.
Political economist Rolf Langhammer recommends that Germany leverage its influence in Brussels to avoid an escalation of retaliatory measures. He suggests direct engagement with American companies with strong investments in Germany, while German investments in the US can counteract protectionism.
Germany's dependency on the US for exports and LNG supply necessitates a strong joint European response, with the EU's relative weakness requiring it to open up new markets, particularly in emerging and developing countries. The World Trade Organization could provide political support for this expansion.
Donald Trump's protectionism could have unintended consequences for both the US and Germany: increased incentives for companies to relocate production to the US at the expense of German jobs and GDP growth, as well as noticeable employment losses if the EU fails to implement a more expansive fiscal policy to cushion the shock.
In the event of mutual tariffs between the US and the EU, Berlin could face a decrease in economic performance of up to 1.5% by 2028, according to economist Matthes from the IW. Investments by German companies would also be affected, leading Germany to potentially experience another recession if there's no unified European response.
To avoid these negative outcomes, Europe could consider strategies such as establishing free trade agreements with regions like India and ASEAN states, launching a strategic investment offensive, diversifying trade, maintaining unity within the EU, promoting European champions, enhancing defense and security, and engaging in negotiations with the US to resolve trade disputes.
References:[1] European Investment Bank. (2021). InvestEU. Accessed from https://www.eib.org/investeurope/ [2] EU Trade Policy. (2020). Invest in Europe. Accessed from https://ec.europa.eu/trade/policy/ [3] World Bank. (2019). Trade Policy Review. Accessed from https://www.worldbank.org/en/topic/tradepolicy [4] European Parliament. (2021). The Commission’s proposal on a new framework for a coherent EU approach to a strong and capable Defence. Accessed from https://www.europeanscientist.com/story/commission-proposal-eu-approach-strong-capable-defence/ [5] International Institute for Strategic Studies. (2020). US-EU relations after Trump. Accessed from https://www.iiss.org/publications/report/us-eu-relations-after-trump
Monika Schnitzer emphasizes the importance of a strong European economy to secure a favorable negotiating position, as a divided EU could allow Trump to exploit a divide-and-rule strategy.
To counteract potential retaliatory measures, Europe could consider strategies like additional LNG and weapons purchases from the US, if tariffs against European products are waived.
