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Trade

Can Europe exploit Trump's protectionism?

German Economy Minister Sigmar Gabriel says that Europe can and should step in and fill the gaps left by Donald Trump's trade policies. The focus is on the Pacific and Asia, including China and India.

Hongkong Bundeswirtschaftsminister Sigmar Gabriel in der Tunnel-Baustelle der deutschen Firma Herrenknecht (picture-alliance/dpa/B. von Jutrczenka)

Sigmar Gabriel in Hong Kong

The US president may have no time for the Trans-Pacific Partnership (TPP), but Europe would be well-served by intensifying its economic partnerships in Asia. That was the message communicated by Vice-Chancellor and Economy Minister Sigmar Gabriel in a major newspaper interview published one day after Donald Trump pulled the US out of TPP.

"If Trump starts a trade war with Asia or South America, it will open up opportunities for us," Gabriel told the business newspaper Handelsblatt, adding that: "The American economy is often not competitive, whereas the German economy is."

The other 11 countries in the TPP say they'll push forward with the agreement despite the absence of the US. Gabriel characterized Washington's new policies as a mistake.

"(Trump's protectionism) will be very expensive for Americans - the economy doesn't run on pressure and orders from politicians," Gabriel said. "For Europe, I see opportunities if Trump distances himself not just from China, but all of Asia. Europe should quickly come up with a new Asia strategy. We need to exploit the spaces America is opening up now."

Watch video 02:14

What is protectionism?

Gabriel is no fan of Trump. But his views on the potential usefulness of American protectionism reflect a growing sentiment across the political spectrum in Berlin.

A welcome option

Much of what Gabriel had to say on trade echoes views put forward by members of Chancellor Angela Merkel's conservative CDU-CSU. CDU parliamentary chairman Michael Fuchs, for instance, also sees the possibility for Europe to jump into gaps opened up by US isolationism. That potentially includes the TPP.

"Why not?" Fuchs told Deutsche Welle. "If the Americans have given up on TPP, we can take a look at whether we should go into it."

Fuchs - a former president of the Federation of German Wholesale and Foreign Trade with decades of experience in European-Asian business relations - says that Asia offers Europe another option, should economic relations with the United States cool.

"When you hear (Chinese President) Xi Jinping saying in Davos that he could imagine working together more closely with the Europeans, that's a chance that we should take," Fuchs said. "I'm relatively optimistic that deals can get done here, and we should do them, because we don't know how things will develop with Trump."

China Donald Trump auf Titelseite einer Zeitschrift (Getty Images/AFP/G. Baker)

Trump on the cover of a Chinese magazine: German economists think his TPP decision was a big mistake

Fuchs points out that with their burgeoning populations, both China and India represent attractive target areas for German exports in contrast to the relatively "sated" American market. One problem, however, is reciprocity. Chinese and European companies do not operate on a level playing field concerning foreign ownership of firms or duties imposed on imports.

And despite the uncertainty surrounding the Trump White House, Fuchs doesn't expect a seismic realignment of world trade. Treaty obligations will have to be met, and that's not all.

"The Americans will quickly notice that they need trade with Europe and vice versa," Fuchs predicted. "I don't think the Americans can simply do without Europeans as suppliers, at least not Germans, because we provide a number of products that they require."

A 'geo-political own goal'

No one is sure how far Trump is prepared to risk a trade war in the interests of protectionism. But German economic experts agree with politicians that the new president's first move in this area was a misstep. According to the Cologne Institute of Economic Research (IW), one immediate consequence could be that China tries to do a deal with the TPP countries.

"I think America is scoring a geo-political own goal right now," IW analyst Jürgen Matthes told DW. "The TPP agreement was conceived to shut out China, and the US have given that up. Put it this way: you can be happy if you're not an economist with a healthy dose of common sense in the United States right now."

Economists agree that Germany and the EU should look to intensify trade ties with Asia as a hedge against the possibility of exports to the US being restricted. But there are risks involved with that strategy as well. No one wants to alienate a major traditional trading ally - to say nothing of helping to precipitate a global trade war.

"If you turn away from a trading partner with whom you've had decades of close cooperation and establish new relationships, it always contains an element of risk," economist Thore Schlaak of the German Institute for Economic Research in Berlin told DW. "India is also an example. It's a huge country with a billion people, but for German companies, it's largely unexplored territory."

Gigantic asymmetries

USA TPP Protest (Getty Images/AFP/)

Trump's supporters oppose large-scale international trade deals

So how likely is a major re-orientation by Europe away from its primary trading partner and toward countries in Asia and South America?

Both Schlaak and Matthes think that tradition, mutual dependency and existing agreements, rules and institutions like the World Trade Organization will prevent the equivalent of a core meltdown in US-European trade relations. Smaller nations could be in for a rougher ride.

"We're going to see Trump renegotiating deals with smaller countries like Canada and Mexico in which he dictates much harder conditions," Gabriel Felbermayr, the director of Munich's Center for Foreign Trade (IFO) told DW. "And they'll accept those conditions. The asymmetries are gigantic. The US represents one quarter of the world market."

Much will depend on how far Trump dares to push the "America First" agenda against larger trade partners. All three economists say they have a hard time imagining that he will effectively cede an economic area like Asia in the interests of rigid protectionism. But you can hear a trace of uncertainty in their remarks - with reason.

After all, if there's anything predictable about the new US president, it's that he's always good for the unexpected.

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