Protectionism First Threat of punitive trade tariffs sends Germany reeling

The Trump administration wasted no time disrupting immigration or slashing regulations, but when it came to making good on its much-hyped “America First” trade agenda, the president seemed to drag his feet. Not anymore.
Donald Trump will take until April to decide whether the new measures match his America First rhetoric.

If German exporters had been hoping the Trump administration would continue its more-bark-than-bite stance on trade indefinitely, those desires have been quashed once and for all. America's closest trading partners have been left reeling after US Commerce Secretary Wilbur Ross unveiled suggestions for punitive tariffs on foreign steel and aluminum.

"America First is becoming less of a slogan and more of a reality," said Martin Wansleben, the head of Germany’s Chambers of Commerce and Industry, DIHK.

Mr. Wansleben wasn't the only one caught by surprise at the severity of Mr. Ross' proposals released on Friday – perhaps lulled into a false sense of security because it took so long for his Commerce Department to come up with concrete suggestions for implementing Donald Trump's "America First" trade agenda. While the administration had moved quickly in the past year to lay out priorities on issues like immigration, taxes, and energy – pulling out of the Paris climate accords for example – threats on trade policy had for the most part remained empty.

The problem is the pivot toward protectionism. Martin Wansleben, DIHK

Empty threats they are no longer. On Friday, Mr. Ross proposed one of three options for steel: a 24 percent tariff on all imports, a 53 percent tariff on imports from select countries or cutting the level of all steel imported by the US by 37 percent. For aluminium, the Commerce Department proposed a tariff of at least 8 percent. The White House has said that President Trump could take until mid-April to decide exactly which of the Commerce Department's proposals to implement, but leading voices of German industry and the economy are already speaking out.

"This is a delicate matter, one that runs the risk of causing substantial collateral damage," said Holger Bingmann, the president of the Federation of German Wholesale and Foreign Trade (BGA).

If the Trump administration follows through, observers fear the erection of trade barriers around the world’s largest economy could spark a devastating trade war. The European Commission has said it is waiting to see the final decision, but is ready to take counter-measures to protect Europe's industry. That response would start with a court challenge before the World Trade Organization – another body from which Mr. Trump has considered withdrawing the United States.

The trigger for the latest trade war – a glut of steel – is hardly a new debate. For years, the sector has been beset with difficulties as cheap steel from China flooded the markets (see graphic), forcing steel companies to merge. The German government, for its part, has reserved ample criticism for China's dumping prices, but it has also tried to prevent Washington from taking matters into its own hands and resorting to unilateral protectionism. The World Trade Organization is where Germany and many European governments would prefer to settle the long-standing issues facing the global steel industry.

If the US ever found itself embroiled in such a tit-for-tat trade skirmish, the steel industry in Europe, and Germany in particular, would be particularly vulnerable. Of all the steel German companies sell outside the EU, some 20 percent of it ends up with American companies.

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The problem isn't only that German companies would be affected by the potential US tariffs. "The problem is the pivot toward protectionism, which is manifested in the new tariffs and the willingness to weaken the WTO," Mr. Wansleben said. That view was backed by Christian Hirte, who is expected to take over the economics ministry once a new coalition government is finalized. "Everyone in the West, including the US, owes their prosperity to rule-based, fair free trade," he said. "Punitive tariffs and trade wars are the wrong approach."

Europe will find common ground in that pursuit with Canada, which is fighting its own trade battles with the United States over the future of the North American Free Trade Deal, NAFTA. Chrystia Freeland, Canada's foreign minister, said she hopes that Europe will play a role in keeping the world's economic and geopolitical crises from boiling over. "We need Europe's help with that," she told Handelsblatt on the sidelines of the Munich Security Conference.

There's another aspect to the latest proposals that has raised eyebrows: The idea that European or German steel could somehow threaten US national security. That notion, which formed part of the basis for Mr. Ross' tariffs, was rejected by Germany's economics ministry. It also sets a dangerous precedent, according to Clemens Fuest of the Ifo Institute, since a broad definition of national security could be used to rationalize virtually any trade barrier. If you view the economy as a national-security threat, Mr. Fuest noted countries could just as well cite rising unemployment or the demise of a certain sector due to competition from abroad.

That, in turn, would mean open season for national governments to take control. "If the US government starts imposing import tariffs on such grounds on a larger scale, it will trigger countermeasures that restrict US exports to other countries," Mr. Fuest said. "In the end, everyone loses."

Jan Hildebrand, Till Hoppe, Moritz Koch, Annett Meiritz, Jens Münchrath, Torsten Riecke and Donata Riedel of Handelsblatt contributed to this story. Chris Cottrell and Christopher Cermak adapted the story for Handelsblatt Global. To contact the authors: [email protected]