Trade tension: EU’s large surpluses make it vulnerable if Trump does a deal with China

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Trade tension: EU’s large surpluses make it vulnerable if Trump does a deal with China

THE BIG PICTURE



With the world set for its slowest economic growth since the financial crisis, the European Union will start to look more vulnerable once again due to its heavy dependence on trade.

Data released yesterday showed the size of the EU’s current account surpluses and it revealed that most of the EU-28 have surpluses, in many cases substantial ones that may make the bloc vulnerable to protectionism.

The country with the most substantial deficit is, of course, the UK – and it wants to leave the EU.

Although US President Donald Trump has targeted imports from China with his tariffs, aimed he says at stopping US workers being undercut, he has also threatened Europe.

Germany’s current account surplus relative to the size of its economy is the largest in the world. Estimates are that it will hit 7.8pc of gross domestic product this year, according to the Munich-based Ifo Institute.

This will be the third year in a row that it has emerged as the biggest surplus in the world.

The International Monetary Fund has urged Germany to do more to bolster domestic demand and imports, but it has gone the other way, embedding strict deficit rules in its budget process.

The huge current account surplus is why Mr Trump has frequently targeted German car exports to America.

Read more: China under pressure to strike US trade deal after exports fall

China, which has attracted most of Mr Trump’s ire, saw its current account surplus peak a long time ago, at 9.9 pc of GDP in 2007 and by 2017, it was just 1.3pc of GDP.

However, it now looks as if the President wants a deal with China, something he could sell to voters as he seeks a second term in office.

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That means he may need to look elsewhere for an external enemy on trade, and Germany and Europe may look inviting.

When he went to Washington DC last year, European Commission President Jean-Claude Juncker appeared as surprised as anyone that he walked out of the White House with a trade truce rather than the declaration of a trade war.

But there is still no firm deal and a bump in imports of US soybeans that has been delivered by the EU is unlikely to appease Mr Trump.

Even the US-China trade war has not emerged as a boon for Europe. With the world’s two largest economies now slowing, that means there will be less demand for luxury German cars or the kind of high-quality industrial machinery it sells overseas.

While the United States is one of the least dependent major economies on external trade – thanks to its huge internal market – the EU and Germany, in particular, are among the most exposed.

Data from the German-American Chambers of Industry and Commerce shows that a million jobs in Germany are dependent, directly or indirectly, on exports to the United States.

Irish Independent

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