Introduction to Trade Promotionism
In the history of mankind, trade promotionism is nothing new in export-driven Germany. The then Chancellor Otto von Bismarck tried to introduce protective tariffs for wheat imports. Bismarck’s tariffs, pushed by a strong peasant lobby in parliament, aimed to contain the growing imports of cheap wheat from other European countries – a goal that finally failed.
The Era of Protectionism
US President Donald Trump is known for his unique attitude in history, and he did not hesitate to initiate a new era of protectionism. He aims to protect and isolate the world’s largest economy through an aggressive tariff policy.
Impact of Protectionism
Most western economies owe a large part of their prosperity to free trade. However, this will be rolled back now, and it will take some time for us to see a new balance. The European Union has already tested the waters and threatened specific retaliation tariffs, for example on motorcycles and bourbon whiskey.
Senseless Reactions of the Knee Jerk
It would be stupid to react immediately to Trump’s politics with retaliation measures. His guidelines are too unpredictable for this. A closer look at the list of mutual tariffs shows who Trump really targets. It is the countries that describe a big trade surplus with the United States, which causes the president’s anger. First and foremost, these countries are China, Canada, Mexico, and Germany.
Brussels is Waiting for Berlin to Lead Retaliation Measures
The economists Marc Schastenberg and Robin Winkler from Deutsche Bank Research believe that Germany is unable to escape the tariffs, and they ask German politicians to enter the fight. The tariff shock increases the pressure on the next federal government to defend the competitiveness of the German economy in an increasingly challenging global environment.
No Advantages in a Trade War
German companies that concentrate on the domestic markets could use some advantages from a shift in the trade pattern over time. However, these will not "escape the dance," since the disorders of the export industries would inevitably go through the broader economy. Moving German operations to the Atlantic – a main goal of Donald Trump’s trade policy – is not a viable option due to the unpredictable economic policy of the US President and the tariff chaos.
Digital Tax as a Response
When Europe sets an appropriate answer to extended US tariffs, political decision-makers consider a digital tax to the large technical companies in America. However, using the "nuclear option" of Europe as a "nuclear option" in the trade war is not a good idea. A European digital tax would be the worst answer, as it is completely misjudged to answer a topic of trade policy with a new tax.
Alternative Solutions
Instead of a digital tax, the EU could impose export tasks on goods that the United States have to obtain from Europe. High-tech machines for semiconductor production, which are currently produced almost exclusively in Europe by the Dutch company ASML, could be targeted. A powerful export tax for these machines would make US companies expensive and potentially force the US government to compromise. However, it would be better if EU political decision-makers now focused on all their efforts on investments, structural reforms, the reduction of bureaucracy, and deeper integration such as a capital markets and the defense union.
