Among Europe's elite, Trump's trade talk earns grudging support

Several investors and economists admitted that some of US President Donald Trump's complaints about unfair competition from China ring true.
Several investors and economists admitted that some of US President Donald Trump's complaints about unfair competition from China ring true. PHOTO: EPA-EFE

FRANKFURT/LONDON (BLOOMBERG) - No one likes trade wars but US President Donald Trump is starting to win some grudging support among European and global business elites as he moves to put China's trade practices in the spotlight.

Investors and economists attending the annual Ambrosetti Spring workshop along the shores of Italy's Lake Como voiced concern about protectionist sabre-rattling between the US and China. Yet several admitted that some of Trump's complaints about unfair competition from China ring true.

"Import tariffs on cars are 2.5 per cent in the US, 10 per cent in Europe, 25 per cent in China. So who's the true manipulator here?" Davide Serra, chief executive officer of Algebris Investments, said in an interview with Bloomberg Television.

"If China wants to be the adult in the room, it needs to behave like an adult."

China vowed Friday to fight Trump's tariffs "to the end" after the US President asked his administration to consider tariffs on an additional US$100 billion of Chinese goods.

That raised stress levels among the pillared corridors of Villa D'Este in Cernobbio, where the conference gathers bankers, economists, and investors.

First to sound the alarm was European Central Bank Executive Board Member Benoit Coeure. He outlined a scenario where the US and its trading partners impose tit-for-tat tariffs of 10 per cent on goods, which would have "significant adverse effects" on the global economy but hurt America most by cutting 2 and a half percentage points from growth in the first year alone.

"China's share in world output is gigantic and one has to be concerned that any uncertainty in that large country can be exported to the rest of the world," said JPMorgan Chase International Chairman Jacob Frenkel in an interview.

"The way to address it is to engage rather than confront."

As the trade confrontation between the US and China threatens to escalate, Europe may be caught in the middle of the tug-of-war.

"Europe should be the de-escalating power," Heiner Flassbeck, honorary professor at Hamburg University and a former German government official, said in an interview. "Trump at least has one good point, which is that there are countries out there - including my own country, Germany - that have huge surpluses on trade, and this is not a normal part of open trade."

EU Commission Vice-President Valdis Dombrovskis believes that trade disputes should always be handled at a multilateral level and not bilaterally. “If there are trade disputes, and there will always be trade disputes, solve them within the WTO.” 

Negotiating strategy

For all the concerns about the next steps that the US and China may take, in Cernobbio many hope that Trump's fiery words may just be a negotiating strategy.

"We need to understand the difference between noise and signal," Andrew Sheng, China Banking Regulatory Commission chief adviser, said in an interview. "I don't think China wants to hurt the US I don't think anybody wants to hurt anybody else. Trump is a very good negotiator and I think everybody feels that if he wants to get a better deal, there will be a lot of negotiating stance."

The latest threat to global trade has already pushed US stocks down and raised Treasury yields, bookending a week that saw equities tumble.

"Discipline is going to eventually come from the markets," said Nouriel Roubini, CEO of Roubini Macro Associates. "We've already seen how this rise of trade tension has led to a significant market correction."