Trump's threat to Germany

Mathias Brüggmann, Moritz Koch, Jens Münchrath, Torsten Riecke
Key Points
  • Trump is dismantling, brick by brick, the post-war liberal world order
  • His foreign, security and trade policy represent a frontal assault on Germany's economic way of life
  • American threats are causing real anxiety at the highest levels of German business.
U.S. President Donald Trump and German Chancellor Angela Merkel
Ukas Michae/Pool/Getty Images

It may seem hard to believe, but Donald Trump has been president for less than 10 months. If at times his presidency has seemed to lurch grotesquely from one gaffe to the next, there is at least one clear pattern: Mr. Trump is dismantling, brick by brick, the post-war liberal world order, of which America was once founder and champion. And that is very bad news for Germany.

Under Mr. Trump, multilateral free-trade agreements are being trashed, in favor of bilateral ones where the United States can dominate smaller countries. Open markets are out of fashion. For the Trump administration, trade is a zero sum game, in which other countries are out to steal America's wealth. Fair and equal rules for all? Not Mr. Trump's style. In his economic order, America does what America wants.

What is increasingly clear is that Mr. Trump's foreign, security and trade policy represent a frontal assault on Germany's economic way of life. The American president is conducting economic war: whether intentional or not, it hits Germany harder than anyone else. This is because Germany, more than anyone else, relies on open markets, free trade and cross-border business models.

American threats are causing real anxiety at the highest levels of German business. That's because almost half of German economic output comes from its exports. Those to the US are worth almost €114 billion ($135 billion), contributing to an overall current account surplus of around €283 billion. This contrasts with the United States' vast trade deficit, a comparison which infuriates President Trump.

Threats to German business will intensify over the next few weeks. In talks currently underway with Mexico and Canada, the US administration is seriously considering abandoning the North American Free Trade Agreement (NAFTA) sealed in 1994. Under NAFTA, cross-border North American trade has grown five-fold, and now represents one-third of global trade.

The abolition of NAFTA would not only damage world trade, hurting Germany's export-driven businesses. It would also severely disrupt the production supply lines of German car companies including Volkswagen, Audi, Mercedes and BMW, all of whom manufacture in Mexico for export to the United States.

"America First" is the slogan of Mr. Trump's security policy as well as his trade policy. In fact, the two are inseparable, as seen in his attempts to undermine the 2015 nuclear deal with Iran. Here, America's actions will also hit German firms hard. This is because Washington's current favored policy instrument is extra-territorial sanctions, imposed even on non-American firms which trade with Iran or Russia. German Economy Minister Brigitte Zypries has called these third-party sanctions "quite simply against international law."

And beefed-up sanctions on Russia – expected in the coming weeks – will above all hit European companies in the energy sector, especially those involved in the Nord Stream 2 pipeline set to carry Russian gas to Europe.

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European governments are talking tough. "Under no circumstances will we accept extra-territorial American sanctions on European companies," Germany's foreign minister, Sigmar Gabriel, said in a remarkably frank interview with Handelsblatt. Although European and German forbids companies from bowing to American sanctions, the US has been uncompromising in using its laws to punish European companies: European banks BNP Paribas, Commerzbank and Deutsche Bank have all been hit with billion-dollar fines for transactions with Iran, Cuba and Sudan.

The 2015 nuclear deal was supposed to end sanctions, but fear of American reprisals has meant most German banks refuse to finance deals with Iran. This has stifled a hoped-for renaissance in German trade with the Middle Eastern country. Iran's economy is booming but so far, French and Chinese companies are reaping the rewards.

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American threats are causing real anxiety at the highest levels of German business. On Tuesday, industry organizations met with government officials to discuss the prospect of new sanctions on companies dealing with Iran and Russia. "There is major, major concern," said Michael Harms, the director of the German Committee on Eastern European Economic Relations.

New Russian sanctions could hit German business hardest of all. Despite existing restrictions, German companies have been key in the recent increase in foreign investment in Russia, which quadrupled between 2015 and 2016. There are around 5,000 German firms doing business in Russia, including many household names. Carmaker Daimler is building a factory near Moscow, chemicals giant BASF is expanding production in St. Petersburg, and conglomerate Siemens sells gas turbines to Siberia. In the first half of 2017, German-Russian trade increased 25 percent.

As America gears up to impose its will on global business, all this could be under threat. American enforcement of sanctions can be ruthless, hunting down every possible US connection of foreign firms seen as trading with the enemy. Using a US-based server, or just having an employee with a US social security number could be enough to trigger the wrath of Uncle Sam, putting billions of dollars of trade at risk.

There is little individual companies can do. "Legal measures against extraterritorial sanctions are extremely limited," says Gabriel Felbermayr, a trade expert with Munich's ifo Institute for Economic Research.

"Instead of common responsibility, now we have 'America first'."

US sanctions policy is alienating long-standing friends of the United States. Friedrich Merz, a former Christian Democrat parliamentarian, and chairman of Atlantik-Brücke, an organization devoted to German-American ties, says the European Union must increase pressure on the US. Extra-territorial sanctions are "completely unacceptable," he says.

The Europeans have not completely given up hope of changing American minds. German, French and British diplomats have mobilized their diplomatic resources in a massive campaign on Capitol Hill, looking to persuade the US Senate to stick with the Iran nuclear deal.

So what should Germany's strategy be? Persuasion seems unlikely to work on its own, least of all with President Trump. Previous American presidents liked to be constructive. But the New York property developer prides himself on being a political vandal.

Alternatives include a search for new strategic alliances. The recent trade deal with Japan may point the way, perhaps blazing a trail for India, South Korea and Latin American countries. German relations with China may also soon grow closer: ironically enough, since Mr. Trump's election, the Chinese Communist Party has posed as a loyal champion of global free trade.

Europe still seems weak, in spite of French president Emmanuelle Macron's desire to include the entire continent in his plans for reform. The European Union is deeply divided. Brexit is sowing chaos and possibly heralding the fragmentation of the 28-member union. Europe is still very far from speaking with a single voice on economic and political questions.

Nonetheless, it is time for Europe – and Germany – to emancipate itself from America, but without giving up on its great trans-Atlantic ally. Germany will always be grateful to the United States for making rehabilitation possible after its moral and physical ruin in the Second World War.

But this is a different moment. As Mr. Gabriel put it, "Donald Trump represents anti-modernity. Instead of cosmopolitanism, there is isolation from the world. Instead of common responsibility, now we have 'America first'." No one wants to see an isolated America. It's time to show Mr. Trump the limits of his approach, and the limits of his power.

—By Mathias Brüggmann, , Jens Münchrath and Torsten Riecke