Germany Braces for Trump’s Trade Policies
Posted by hkarner - 29. November 2016
Source: The Wall Street Journal
Germany’s formidable exporters assess dangers of U.S. protectionism—but also new opportunities
The U.S. is Germany’s largest trading partner, accounting for nearly 10% of all German exports.
FRANKFURT—Donald Trump’s victory in the U.S. presidential election, after a campaign attacking free trade, has companies in Europe’s biggest exporting nation scrambling to tally up the impact.
Germany shipped $125 billion in goods to the U.S. last year, 2.5 times what it imported from the U.S., according to the U.S. Census Bureau. The U.S. is Germany’s largest trading partner, accounting for almost 10% of all German exports, according to Germany’s state statistical office.
“If Trump can enact the trade limits he has announced, the damage would be substantial,” said Clemens Fuest, president of Germany’s Ifo Institute for Economic Research. He estimates 1.5 million German jobs depend on exports to the U.S.
Germany’s economics ministry, in an internal assessment of Mr. Trump’s economic platform compiled before the election, warned he could isolate the U.S. from global economic activity, removing a massive source of demand for German exports.
The study, first reported by news weekly Der Spiegel, was confirmed by a German official, who noted that many campaign proposals may not become policy.
Germany also may have some security because its companies are big players in the U.S. domestic economy. German direct investment into the U.S. totaled $47 billion in 2015, according to the U.S. Commerce Department. The 50 largest U.S. affiliates of German companies employ nearly 750,000 American workers, according to the German American Chamber of Commerce.
Aside from German icons such as BMW AG and Siemens AG, brands including DHL Express, Aldi Nord’s Trader Joe’s and TRW Automotive are German-owned, so erecting barriers on trade could be complicated.
Indeed, as the election shock fades, some German business leaders see an upside in potential Trump administration measures such as higher infrastructure spending and a shift in energy policy back toward fossil fuels.
“Changes in the U.S. government’s constellation open possibilities for action that haven’t existed before,” said a spokesman for Bilfinger SE, an industrial-services company based in Germany.
He cited Keystone XL, an oil-pipeline project that Mr. Trump favors, although it was vetoed by President Barack Obama.
“This is a project that’s important for our customers in the oil and gas sector,” the Bilfinger spokesman said. The company, which provides industrial-maintenance, engineering and construction services, could be a candidate to build parts of this pipeline, the spokesman said.
Industrial and technology conglomerate Siemens, which posted U.S. revenue of €16.8 billion ($17.8 billion) in its fiscal year through Sept. 30, expressed confidence in the market.
“We are certain that Siemens will find many areas upon which we agree and can work productively with the new U.S. administration,” a spokesman said.
Another potential layer of insulation for many German companies is their sophisticated products, such as advanced machinery, which aren’t widely produced in the U.S.
“The U.S. is weak in traditional industries where Germany is strong,” said Marcel Fratzscher, president of DIW Berlin, an economic think tank. He predicted a shift in U.S. policy wouldn’t hurt demand for German cars, machinery or chemicals. “Without these products, the U.S. economy would have difficulty,” he said.
German companies also could benefit from policy changes, said Sebastian Dullien, a professor of international economics at HTW Berlin. If the U.S. increases spending and introduces tax cuts, that tends to usher in higher interest rates that would strengthen the dollar, an advantage for European exporters.
A stronger dollar, however, holds a danger, too, he warned.
“If the dollar appreciates and European car manufacturers gain ground in the U.S. market, Europe should be prepared to be confronted with protectionist measures—just as Japan was in the 1980s when the U.S. dollar surged,” Mr. Dullien said.
While Mr. Trump so far has focused his criticism on China and Mexico, Mr. Dullien warned that Germany’s swollen trade surplus with the U.S., long a sore point in Washington, also could become a target.
“The German finance ministry should prepare itself to draw fire,” said Mr. Dullien. Germany’s global trade surplus is now nearly 9% of gross domestic product, far larger than China’s 2.5%, he noted.
And even if Mr. Trump remains focused mainly on restricting trade with Mexico and China, German companies still could suffer. That is because many, including Adidas AG and Volkswagen AG, export to the U.S. from plants in Mexico that benefit from the North American Free Trade Agreement, which Mr. Trump has pledged to renegotiate.
“If the world’s biggest economic power is pursuing a protectionist path, then this will be felt around the globe,” said Reinhold Festge, president of Germany’s VDMA engineering federation.