Trade Policy

USA: Worrying protectionist policy

| Author: Stéphane Itasse

US President Donald Trump ensures disquiet with the announcement of customs duties and the desire for re-negotiating the Nafta trade agreement.
US President Donald Trump ensures disquiet with the announcement of customs duties and the desire for re-negotiating the Nafta trade agreement. (Bild: Trump CPAC 2011 / Gage Skidmore/Wikimedia / CC BY-SA 2.0)

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

President Trump had announced a series of measures under the motto “America first“, to protect the interests of the USA and US-workers. But actually, he has only exited the free trade agreement TPP (Trans-Pacific Partnership) as yet, which was not even ratified yet 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 the exports of the country have been to the USA. Generally,the US-President threatens other countries with punitive customs duties, up to 35% are under serious discussion. However, nothing concrete has been implemented yet;even th eprocedure for this is as yet unclear.

Germany has a lot to lose through US-customs

The Germany economy will lose to a certain extent with the USA as a trade partner: in 2015 (latest numbers were not available at the time of going to press),the United States was the biggest export market of Germany with exports amounting to 113.73 billion Euro in all. Only France still exceeds the 100 billion Euro threshold, even if only with a scarce export volume of 102.76 billion Euro. China, from whom long term growth is expected,just managed the fifth place with 71.28 billion Euro. In addition, according to data from the Bundesverbands der deutschen Industrie (BDI) (Federal Association of German Industry), there are 4700 companies with German participation in the USA, which offer almost 700,000 job opportunities in the country.

Accordingly,even statements from Washington are sufficient to throw the German economy into a frenzy. The former BDI President Ulrich Grillo said in November last year that Trump must “end the isolationist election rhetoric“. But he is singing a completely different tune now. “The trans-atlantic partnership continues and remains an important pillar for a strong economy, for international security and for shaping globalisation”, said his successor Dieter Kempf at the BDI-U.S. Congressional Roundtable on the sidelines of the Munich Security Conference. “Make America great again does not sound islolationist at all.“The company in the USA relies on German engineering technology and semi-finished products from Europe.

VDMA warns of insecurity because of the protectionaist policy of the USA

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 USA. Insecurity leads to reluctance in investments. Machinery supply to the USA could be the first precursor for that, the reduction of which the the autumn of 2016has 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 United States will continue to remain the largets single export market for the German machine building. 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 thatprotectionism and new trade restrictions will neither bring more jobs nor will add growth in the end, either to the USA or to its trade partners.Inthis respect, President Trump is playing with fire“, warns Brodtmann further.

This article first appeared on MaschinenMarkt online.

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