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U.S.-Chinese Trade Conflict Spells Danger for German Industry

China is increasingly playing the role of defender of free world trade, albeit without having distinguished itself as a driving force for a liberal global trade regime. The confrontation between the US government and China poses various risks for German industry.

While U.S. President Donald Trump makes no secret of being sceptical about multinational (trade) agreements, China increasingly fancies itself as defender of both free trade and globalization. In its public statements, Beijing is currently waging a campaign against protectionism. However, the Chinese authorities would make a more persuasive case if they were to follow up words with deeds in their own country. Indeed, there is significant room for progress towards doing away with asymmetries in trade and investment.

‘America First’ Meets ‘China First’

For his part, U.S. President Trump is following up his own China criticism by taking measures that he believes will lead to slashing the U.S. trade deficit with that country. Initially, China adopted a wait-and-see approach, but now it has announced that it will defend its own interests by all possible means and the last two weeks seemed to show some progress and willingness on both sides to deescalate the trade conflict. Donald Trump by pursuing his hard line against China accepts that he will alienate many trade partners.

Despite all the justified and necessary criticism of Donald Trump, which became increasingly vocal after the announcement of tariffs on steel and aluminium imports, we should not allow the impression to emerge that it is only the United States that is damaging world trade. While the United States is causing alarm by turning its back on free trade, it is almost comical that China, of all countries, is speaking about an attack on the global trade regime: after all, according to the World Trade Organization (WTO), the average import tariff in China is 9.9 percent and thus much higher than in either the United States (3.5 percent) or the EU (5.2 percent). Moreover, China has hardly distinguished itself to date as a defender of the global trade regime, as is evident not least from the numerous antidumping cases filed against China at the WTO.

Trade War Would Have Consequences for German Industry

A surge in protectionism would hit the trade nation Germany hard. Roughly every fourth job in our country depends on exports and that figure is more than every second in German industry. German companies have close economic ties with both the United States and China. Besides the impact from levying duties, which is already being felt by German industry, the escalating conflict between the Unites States and China puts German industry between a rock and a hard place. One of the parties is likely to ask: On whose side is, in fact, German industry? We should do everything in our power to ensure that we do not get to that point. But, above all, German industry should not allow one side to play it off against the other. Rather, it should call on the two partners to settle any disputes within the framework of the WTO.