On transatlantic trade, Trump is all bluster, no bite — so far

BERLIN — Donald Trump may not be so bad for transatlantic relations after all, at least when it comes to trade and business ties.

A year after the U.S. president’s election, diplomatic relations between Washington and most European capitals are frosty, at best. Many ambassadorial postings on the Continent have yet to be filled. And yet worries that America’s irascible president would have a chilling effect on U.S.-European business ties have turned out to be largely overdone. For the time being, at least.

Just as Trump hasn’t withdrawn the U.S.’ security guarantees for Europe, as some feared after his harsh criticism of NATO partners, he hasn’t taken any steps to curtail business links either. That may be due, at least in part, to what former top Trump strategist Steve Bannon calls the Deep State, the invisible network of career government officials and private entities committed to maintaining the status quo. More likely is that it just makes good business sense.

Trump’s reluctance to act on his threats reflects a simple reality of transatlantic trade: The two spheres have become so intertwined after decades of expanding business ties that moves to impose high tariffs or other barriers would be severely damaging to both sides. The two trading blocs are one another’s largest trading partners and account for about 40 percent of global trade.

“He hasn’t put forward measures such as tariffs, because prices would also rise for American customers, and we suppose he wants to prevent that” — Researcher Thore Schlaak

Trump made Europe’s (read: Germany’s) trade surplus with the U.S. a fixture of his populist tirades, both before and after becoming president. After canceling the U.S.’ trade deal with Asian countries, Trump put talks over a transatlantic free-trade pact into a deep freeze. During a meeting with European officials in May, he singled out Germany, calling it “very bad on trade.”

He returned to the theme during his Asian trip this month, telling an audience in Vietnam last week: “We are not going to let the United States be taken advantage of anymore.”

Yet, so far, his complaints have been little more than bluster. In the first nine months of 2017, trade in goods between the EU and the U.S. rose 2.7 percent to $526 billion, according to U.S. government data. The German share was also up, rising 2.8 percent to $126 billion.

The focus of Trump’s ire — Germany’s trade surplus with the U.S. — also expanded slightly. While some of the increase is likely due to currency effects, there’s no question the overall trade relationship remains as robust as ever.

Trump struck a hard line on trade during his recent Asia trip | Minh Hoang/AFP via Getty Images

“The interest in the U.S. market continues to be very strong,” said Stormy-Annika Mildner, a senior official at the Federation of German Industries, Germany’s main business lobbying group.

Many European companies have braced for the possible introduction of a “border-adjustment tax,” which would have made their exports to the U.S. more expensive, but so far the Trump administration hasn’t followed through on it.

Washington has also hinted it might impose tariffs on European steel, suggesting that an abundance of imported steel might pose a threat to national security. The administration continues to investigate the issue, but there’s been no action.

“He hasn’t put forward measures such as tariffs, because prices would also rise for American customers, and we suppose he wants to prevent that,” said Thore Schlaak, a researcher on forecasting and economic policy at the German Institute for Economic Research.

That isn’t to say all’s well on the transatlantic front. The Europeans remain extremely worried about what’s coming down the pike. They are watching ongoing negotiations between the U.S., Canada and Mexico over changing the terms of the North American Free Trade Agreement (NAFTA) very closely. Any move to curtail the arrangement could have a significant impact on large European manufacturers, especially German automakers, which have invested considerable sums in production in Mexico to serve the region.

“There’s lot of uncertainty for companies, and uncertainty is poison for investment decisions,” Mildner said. “Even if you don’t see it today, you could see it tomorrow.”

Indeed, even if there’s been no slowdown in trade activity so far, the concern in Europe, and among other U.S. trading partners, is that the Trump administration is laying the groundwork for substantial changes. The administration’s tough line in NAFTA discussions and what some see as moves to undermine the World Trade Organization have created deep unease, trade experts say.

German Chancellor Angela Merkel | Maja Hitij/Getty Images

“A lot of observers in Washington believe that the U.S.’ proposals are geared toward tempting our partners to walk away,” said Fran Burwell, an analyst at the Atlantic Council, a Washington-based think tank.

The European strategy has been to keep Trump talking. “We have to engage in a dialogue with the United States about trade surpluses and trade deficits and explain where our trade surplus comes from … that there is no unfair gain on our side … that trade is not a zero-sum game,” Mildner said.

German Chancellor Angela Merkel has taken the lead. The U.S. is Germany’s largest export market, and Berlin has taken pains to engage Trump on trade.

When Merkel visited Trump in Washington in March, she took along a large business delegation, including top executives from Siemens and BMW. Their aim was to convince the president that despite Germany’s large trade surplus with the U.S., it makes up for it with investment. German companies are among the largest foreign investors in the U.S. and have established a considerable manufacturing presence there over the years, from cars to chemicals.

When Merkel’s delegation told Trump that German companies employ about 700,000 people in the U.S. and have invested more than $300 billion there, he expressed surprise, according to a person who was present at the meeting. Trump also didn’t know that BMW, which he had attacked for investing in Mexico, makes more cars at its factory in South Carolina than at its hometown plant in Munich.

Still, Trump’s salvo appeared to have some impact. Not long after the March meeting, BMW announced it would invest a further $600 million in its South Carolina operation.

In fact, foreign direct investment to the U.S. has hit record levels in recent years, and the lion’s share of that comes from Europe. What’s more, while the U.S. has a trade deficit with the EU on goods, it runs a surplus in services.

It’s too early to tell whether such arguments have sunk in in Washington. While proponents of robust transatlantic trade take some comfort in the continued strength of trade numbers, they remain on tenterhooks.

“It’s not that things have really blown up yet, because the reality is there has been no real legislation going through the Congress on anything,” said Dan Hamilton, director of the Center for Transatlantic Relations in Washington. “But there are a lot of potential landmines.”

This article is part of a series: The New Transatlantic Order.

Original Article

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