Merkel's Germany in ‘Economic Meltdown’ Amid Trump’s China Trade War
A top economist from Berlin urged Chancellor to step in
Germany is facing an economic meltdown as the trade war between the US and China continues to escalate, according to reports.
A top economist from Berlin urged Chancellor Angela Merkel to give the go-ahead to a rapid reinvestment program to save the country.
Sebastian Dullien from the Institute for Macroeconomics and Business Cycle Research said the German Chancellor was ignoring the dangers of the impact of the war on tariffs between Washington and Beijing.
Dullien claims that the trade war with China is already having a damaging effect on Berlin.
Speaking about the economic situation in Berlin, which is the largest financial provider to the EU, Dullien said:
“The German economy is currently hanging by a thread.”
“We have a development that we have never had in the earlier upswings, namely that actually the industrial cycle has already fallen - this comes mainly from the weak export demand - but at the same time the domestic economy is still running.”
“The global trade disputes already hit Germany today. Although we do not yet have any significant punitive tariffs on German products, the trade war between the US and China is also affecting the German industry."
“And the reason here is that a lot of the industrial companies in China and the Asian suppliers are using German machinery and equipment."
“And for them, the trade war is a massive burden, and secondly, they are not sure if they can continue to produce, they have put their orders on hold or canceled them."
“And that is one of the reasons why, for example, German machinery and plant engineering is not doing well in Germany at all.”
But he was unable to answer a question whether President Donald Trump would find a balanced trade result with China.
“Whether a more balanced trade can be achieved with this, that’s a very exciting question, as we honestly know too little. There is some research on the impact of tariffs on trade balances, but they are not, in my view, properly applicable to this particular case we have," he said.
“What Donald Trump is achieving, of course, is to damage China. And I think one of his goals is actually to damage China because we must not forget, this is not just about economics, it’s about geopolitics."
“China has started a race to catch up, China would like to be one of the most important and strongest states in the world and also wants to be the leader in technology in some industries, and the United States wants to prevent this.
"And maybe Donald Trump’s customs policy could be successful here.”
“Although we have not yet reduced foreign trade imbalances, the upswing was at least supported by consumption and construction investment. But one pillar is missing here, which are the public investments."
“Actually, what we need now is a concentrated government action that can stabilize the expectations of the German industry."
“It would be conceivable here to say that we set up a medium-term, large, public investment program, which runs over several years, which not only covers the typical concrete structures, so not only roads and maybe a few rails, but also in the decarbonization of the economy."
“After all, decarbonization is something that also creates jobs for us in the industry, because wind turbines and plants are built domestically."
“And if you can just give the company the perspective, that there will be demand, a reliable demand over several years, then that could stabilize the mood now.”
He then called on Merkel to intervene.
“My hope would be that the government might now, when the situation gets more serious and when the voices calling for more investment are increasing, as you can see from the employers’ camp and from the unions, my hope would be that then the government stops getting lot in details and focusses on the big tasks of the country.”
In April, President Donald Trump announced tariffs on $11 billion of European Union products in response to the EU's subsidies to Airbus.
"The World Trade Organization finds that the European Union subsidies to Airbus have adversely impacted the United States, which will now put Tariffs on $11 Billion of EU products!" he said.
"The EU has taken advantage of the U.S. on trade for many years," he added.
"It will soon stop!"
In January, Neon Nettle reported Germany was on the brink of recession following the collapse in industrial production.
As the German economy plummeted worse than expected, many traders were shocked.
Industrial production plunged by -1.9 percent in November - a year-on-year low of -4.6 percent stoking the uncertainty in the world's fourth-largest economy.