ECONOMY German Companies Can Trump U.S. Protectionism

U.S. President Donald Trump is planning tough, protectionist trade policies. But after a great year in 2016, German companies shouldn't be too concerned – that is, if they continue to adapt.
Donald Trump signing one of many executive orders. Photo: AP Photo/Evan Vucci

The year is off to a roaring start for German companies despite concerns over U.S. president Donald Trump’s protectionist tendencies. After Germany’s most valuable company, software giant SAP, announced net profits last week of €3.6 billion, or $3.85 billion, for 2016, it will be Daimler’s turn on Thursday to present its biggest profits ever – a likely €9 billion.

SAP chief Bill McDermott and Daimler chief Dieter Zetsche have little reason to think their good fortune will disappear in 2017, even as the global political landscape appears uncertain. And in Germany, they’re not alone. These two balance sheets are an indication of things to come in the next few weeks.

BMW’s premium cars, Henkel’s detergents and Bayer’s pills are in demand all over the world, and they’re repeatedly scoring major results. A dozen of the 30 largest listed German companies are expected to publish record profits, according to Handelsblatt’s calculations. Together, the businesses will earn a record €75 billion, even with major losses at Deutsche Bank and utilities company Eon.

Even former problem children are bouncing back, with Deutsche Telekom showing healthy growth rates in the U.S. market and Siemens boasting an outstanding performance in 2016, despite geopolitical crises and Western sanctions against Russia. Siemens Chief Executive Joe Kaeser twice increased his forecast in the course of the year, finally delivering on investor expectations. At Wednesday’s annual meeting, stockholders can expect results of €2.9 billion, or €3.60 per share.

Germany has pinned its biggest on the U.S, one of its most important sales markets. Perhaps surprisingly, this is not in spite of Donald Trump but because of him.

The recent successes of German companies can be traced back to their decision to focus on foreign markets at an early stage – or, in the case of Deutsche Telekom, just in time. More than two thirds of earnings for Germany’s hundred largest listed firms came from outside the saturated domestic market. In the case of Siemens, it was 85 percent. China, in particular, has turned out to be a boom market for carmakers. BMW, Daimler and VW are behind every third vehicle sold in the huge country. For SAP, Telekom and healthcare company Fresenius, the U.S. market is crucial, representing 40 percent of its revenue shares.

The prospects of increasing profits further are good. The world economy continues to recover, and growth in 2017 should be stronger than in the last five years. China’s economic climate is stabilizing. Europe is recovering despite the U.K.’s Brexit vote and Italy’s banking crisis. The U.S. economy is experiencing rapid growth. This is all good news for Germany’s many export-oriented firms.

The country’s biggest hopes are pinned on the U.S, one of its most important sales markets. Perhaps surprisingly, this is not in spite of Donald Trump but because of him. His personal qualifications to hold the world’s most powerful office might be questionable, but the new president has vowed to encourage consumption and business investment by lowering taxes. Mr. Trump also wants to reduce unemployment with government building projects to fix dilapidated infrastructure. That means more roads, bridges and highways. Under his “America first” doctrine, U.S. businesses such as major conglomerate General Electric and construction equipment giant Caterpillar will naturally be the primary beneficiaries. But Siemens, Linde, ThyssenKrupp and other German firms with healthy U.S. businesses stand to profit, too.

Of course, concerns over protectionist policies, including import tariffs and special taxes, are justified, and immigration restrictions on foreigners are even more alarming. And while Mr. Trump’s rapid-fire announcements via Twitter might boost share prices when investors interpret them as an economic stimulant, they just as often unsettle financial markets.

But German companies have always managed to react flexibly – and profitably – to adversity, as the strong euro and weak domestic market show. Recently, Henkel, Linde, Siemens and others have switched course by increasing focus on tomorrow’s booming markets and pulling back slightly in Europe.

German companies have also long had major manufacturing facilities in many foreign markets, and they continue to expand them to serve their customers locally. Siemens alone employs nearly 60,000 people in around 40 factories in the United States. Companies with production facilities in American cities, including BMW in Spartanburg, Linde in Houston, and Volkswagen in Chattanooga, have little to fear from future punitive tariffs on imports.

 

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