Trade War Watch: Germany and China Now Best Friends

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China and Germany signed a collection of commercial accords valued at $23.5 billion this week. Meanwhile, the nations’ leaders publicly affirmed their commitment to a multilateral global trade order, while the United States adopts a more protectionist policy.

“We both want to sustain the system of World Trade Organization rules,” German Chancellor Angela Merkel said during a press conference. Chinese Premier Li Keqiang, also present, agreed and stated protectionism must be prevented for the good of the global economy.

Chinese President Xi Jinping has already pleaded for governments to maintain an open trading policy. “We reject selfish, shortsighted, closed, narrow policies, [we] uphold World Trade Organisation rules, support a multi-lateral trade system, and building an open world economy,” Xi said in an incredibly hypocritical speech from last month. 

While China has promised to open its market a bit, the country’s trade practices remain exceptionally protectionist. All banks are state-owned and the nation has proven highly aggressive in keeping foreign investments to a minimum — unless they somehow benefit the country in the long term.

The automotive industry sees this in the form of state-mandated partnerships that require manufacturers to join with established Chinese firms. Critics claim these moves force businesses hoping to gain entry to the lucrative Asian market to lose access to their own intellectual property and hand over profits, as China gets a leg up on technologies that would have taken years to develop. The People’s Republic also imposes fairly large import tariffs on high-end goods produced outside its borders, especially cars.

The Trump administrations’ recent tariff proposals seem to exist primarily to counter these issues, dampening China’s plan to become the global leader in all advanced technologies and manufacturing by 2025. But the resulting trade war has created strange bedfellows. The United States had hoped threatening new import duties would encourage Europe to ease off on some of its own. While that approach appeared to be working, with promising rhetoric coming from Merkel, it now looks like Germany may be more interested in siding with China — a country currently retaliating viciously against new U.S tariffs.

In May, China promised to lower its tariffs on imported cars to just 15 percent as a way to appease the United States. However, things didn’t play out that way. The People’s Republic ended up raising U.S. auto import duties to a massive 40 percent.

According to Reuters, the Chinese-German commercial accords include deals with Siemens, Volkswagen, BMW, and BASF. The Chinese government had said that German companies and institutions would soon be able to issue bonds in renminbi in China — a very big deal. But it’s just a promise and the Chinese government doesn’t seem to be particularly good at keeping them.

Some German companies and politicians have complained that Germany is too accommodating toward Chinese businesses, while China has been less than willing to return the favor. There’s also been a string of high-profile takeovers by Chinese firms. While Merkel welcomed the opening of China’s financial sector, she still requested that Beijing continue opening its other markets.

Meanwhile, the United States continues to squabble with itself over Donald Trump’s tariff proposals. It’s plain to see that China is hitting below the belt (if there is such a thing in business), but the Senate voted overwhelmingly against the trade deal on Wednesday — saying the president should seek congressional approval before using national security as a reason for imposing tariffs on other countries.

The majority of its complaints focused on how a hyper-aggressive trade policy might risk alienating allied nations and risk domestic investments. Automakers have already claimed new U.S. tariffs on automobiles and parts would severely hamper their ability to do business effectively. We’re wondering how they feel about China’s new tariffs.

[Image: Volkswagen Group China]

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