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Trade Policy The worrying protectionist policy

| Author: Stéphane Itasse

USA – Since it became clear that Donald Trump was going to beocme the US President, the economic world has turned on its head. He had spoken very clearly against free trade, among other things, in his election campaign – and also represented this position even after the election.

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US President Donald Trump has ensnared disquiet with the announcement of custom duties and the desire for renegotiating the Nafta trade agreement.
US President Donald Trump has ensnared disquiet with the announcement of custom duties and the desire for renegotiating the Nafta trade agreement.
(Bild: Trump CPAC 2011 / Gage Skidmore/Wikimedia / BY-SA 2.0)

President Trump had announced a series of measures under the motto “America first“, to protect the interests of USA and the US workforce. But actually, he has only stirred the free trade agreement TPP (Trans-Pacific Partnership) as yet, which has still not been ratified by the twelve member states.

Over and above that, Trump has announced that he wants to renegotiate or revoke the Nafta free trade agreement with Canada and Mexico. The free-trade zone existing since 1994 has been particularly beneficial for the Mexican export industry – in the meantime, 80% of exports of the country are to the US. Generally, the US President threatens other countries with punitive custom duties – up to 35% are under serious discussion. However, nothing concrete has been implemented – even the procedure for this is still unclear.

Germany has a lot to lose through US customs

The German economy will lose to a certain extent with USA as a trade partner: In 2015 (latest numbers were not available at press time), the US was Germany's biggest export market with exports amounting to €113.73 bn. Only France still exceeds the €100 bn threshold, with an export volume of €102.76 bn. China, from which long-term growth is expected, just managed the fifth place with €71.28 bn. In addition, according to data from the Bundesverbands der deutschen Industrie (BDI) (Federal Association of German Industry), there are 4,700 companies with German participation in the US that offer almost 700,000 job opportunities in the country.

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Even statements from Washington are sufficient to throw the German economy into a frenzy. Former BDI President Ulrich Grillo said in November last year that Trump must “end the isolationist election rhetoric“. He is, however, singing a completely different tune now. “The transatlantic partnership continues and remains an important pillar for a strong economy, for international security and for shaping globalisation,” said Grillo's successor, Dieter Kempf, at the BDI-US Congressional Roundtable on the sidelines of the Munich Security Conference. “Make America great again does not sound islolationist at all.” Companies in the US rely on German engineering technology and semi-finished products from Europe.

VDMA warns on insecurity caused by the US protectionist policy

Even the Verband Deutscher Maschinen- und Anlagenbau (VDMA) (German Association of Machine and Plant Builders) is concerned. Trump‘s statements for a protectionist trade and investment policy have already led to initial consequences. "Since his election, there has been insecurity about the economic policy of the US. Insecurity leads to reluctance in investments. Machinery supply to the US could be the first precursor for that, the reduction of which in the autumn of 2016 has accelerated, ” says VDMA Chief Executive Thilo Brodtmann.

Exports to the USA reduced by 3.4% from January to October 2016, machinery exports even fell by 5.8% in the period from August to October. “Even in 2017, the US will continue to remain the largest single export market for the German machine-building sector. And no one can predict what influence the new American president will have on world trade. Also, it still remains to be seen whether the US Congress and the Senate will simply rubber-stamp Trump’s statements or scrutinise it more in detail. But it is sure that protectionism and new trade restrictions will neither bring more jobs nor will add growth in the end, neither to the US nor to its trade partners. “In this respect, President Trump is playing with fire,” warns Brodtmann further.

This article first appeared in MaschinenMarkt online.

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About the author

 Stéphane Itasse

Stéphane Itasse

, MM MaschinenMarkt