Merkel warns Trump not to unleash all-out trade war

File photo of US President Donald Trump meeting with Germany's Chancellor Angela Merkel in the Oval Office at the White House in Washington, on March 17, 2017.
File photo of US President Donald Trump meeting with Germany's Chancellor Angela Merkel in the Oval Office at the White House in Washington, on March 17, 2017. PHOTO: REUTERS

Comment comes after Trump threatens steep tariffs on EU cars

BERLIN • German Chancellor Angela Merkel yesterday warned US President Donald Trump against unleashing an all-out trade war after he threatened to impose steep tariffs on cars from the EU.

In a speech to the federal Parliament, Dr Merkel said both sides were effectively locked in a "trade conflict" since Mr Trump's decision to slap punitive tariffs on steel and aluminium imports.

"It is worthwhile to prevent this conflict from becoming a real war," she said, adding, however that this "would require both sides" to take steps.

Mr Trump on Sunday charged that Europe is "possibly as bad as China" on trade, as he reiterated that he is considering import taxes of 20 per cent on EU cars.

The European Union has slapped tariffs on iconic American products including bourbon, jeans and Harley-Davidson motorcycles as a symbolic tit-for-tat response to the metals duties.

Taking aim at Mr Trump over his complaint that the EU, and in particular economic powerhouse Germany, is running a massive trade surplus against the United States, Chancellor Merkel said his calculation is skewed, as it is based only on goods, not services.

THE BROADER PICTURE

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.

GERMAN CHANCELLOR ANGELA MERKEL, taking aim at US President Donald Trump's complaint that the EU, and in particular economic powerhouse Germany, is running a massive trade surplus against the US.

"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," she added.

Dr Merkel has previously voiced backing for a "digital tax" that would target multinationals such as Amazon, Facebook and Google, which have come under fire for shifting earnings around Europe in order to pay lower taxes.

But the EU is divided over the proposal, as countries including Luxembourg and Ireland are loath to see US tech giants head for the exit.

With the US-EU trade row showing few signs of easing, European Commission president Jean-Claude Juncker is heading to Washington by the end of the month to seek a way out of the conflict.

Relations between the US and other industrialised powers have turned increasingly tense as Mr Trump has pushed his "America First" stance with punishing consequences for trading partners, regardless of whether they are allies or adversaries.

Historically strong ties between Berlin and Washington have also taken a beating since Mr Trump repeatedly skewered Germany over its record trade surplus as well as its relatively small defence spending. Dr Merkel has acknowledged that Berlin has not been investing enough in defence, but stressed that it will push outlays to 1.5 per cent of gross domestic product by 2025.

Nevertheless, Berlin's planned spending is still short of the Nato goal of 2 per cent that Mr Trump insists on. And despite its 1.5 per cent pledge, its latest Budget forecast for the coming years shows the proportion actually falling to 1.23 per cent in 2022 from 1.24 per cent this year - something that could emerge as a point of contention when Nato leaders meet in Brussels next Wednesday and Thursday.

Dr Merkel has stressed, however, that "Germany is a reliable partner in Nato". "We are the second-biggest provider of troops, we are participating in several missions and Germany will remain a reliable partner of Nato," she said.

Dr Merkel also said "wars are raging on our front door", listing the Syrian war, Islamic State in Iraq and Syria militancy, unrest in Afghanistan and the conflict in Ukraine.

"To not be prepared for defence of the alliance would be negligent," she said.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on July 05, 2018, with the headline 'Merkel warns Trump not to unleash all-out trade war'. Print Edition | Subscribe