Two weeks after Daimler AG became the first German car company to cut its earnings forecasts due to trade war concerns (an implicit warning that already despondent European economic data still has room to worsen), German Chancellor Angela Merkel has ratcheted up her doomsaying rhetoric, invoking the memory of the global financial crisis in a warning about the potential fallout should the US continue to press its trade war with China, Europe and the rest of the world.
According to Bloomberg, Merkel warned during a speech before Germany’s lower house of Parliament that the levies on European car makers threatened by President Trump and the Commerce Department could potentially be “much more serious” than the US’s tariffs on steel and aluminum. Instead, Merkel argued that economic cooperation is far more effective at bolstering economic growth, as the response to the global financial crisis (when the world’s largest central banks worked in concert to pump some $14 trillion into the global financial system) demonstrated.
And in what sounded like a bit of denial about the current state of things, Merkel warned that the US must prevent the “trade conflict” with China from blossoming into an all-out “trade war,” according to the AFP (as if that hasn’t already happened).
“The international financial crisis, which ensured that we now act in the framework of the G-20, would never have been resolved so quickly, despite the pain, if we hadn’t cooperated in a multilateral fashion in the spirit of comradeship,” Merkel said on Wednesday. “This has to happen.”
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“It’s worth every effort to try to defuse this conflict so it doesn’t turn into a war,” she said. “But of course it takes two sides to do that.”
President Trump’s complaints about US trade deficits are overblown, Merkel argued. If services are factored in, the US actually has a trade surplus with the EU.
“If you include services like the digital services, then you have a completely different trade balance sheet with the US showing a surplus against the EU,” she noted.
“It is almost old-fashioned to only calculate goods and not include services,” Merkel told parliament.
This is in keeping with the chancellor’s demands for a “digital tax” that would target US tech companies like Amazon, Facebook and Google.
Of course, Merkel and other European leaders’ apprehensions about a trade war haven’t stopped Brussels from slapping retaliatory tariffs on US products from bourbon to motorcycles and threatening tariffs on an additional $300 billion in US goods.
We imagine this won’t be the last plea to “make it stop” that we hear from the embattled German chancellor, who narrowly survived a challenge to her leadership over Germany’s immigration policy – especially if the eurozone continues to be rocked by disappointing economic data that have already punctured the “global synchronous recovery” narrative, as even Mario Draghi admits that “growth may have peaked.”
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