Trump is a bull in a china shop for US-EU relations – ex-EU trade chief in China
While Donald Trump is eyeing peace on the Korean Peninsula, finally meeting with Kim Jong-un, the US is headed into a tariff battle with Europe and China. Can the global economy cope with a trade war? We discuss this with Joerg Wuttke, the former president of the EU Chamber of Commerce in China.
Sophie Shevardnadze: Joerg Wuttke, the former president of the EU Chamber of Commerce in China, welcome to our show. It’s great to have you with us today.
Joerg Wuttke: Thank you, thank you.
SS:Alright, first of all, let’s start with North Korea. Donald Trump and Kim Jong Un have been shaking hands at a historic meeting in Singapore. And US president has said that it’s possible to lift sanctions on North Korea while the North Korean leader has expressed his strong will to leave all the past behind. How real is this? Is this really happening? Is the North Korean issue about to be finally solved?
JW: Well, as we’re sitting here in China in Beijing, there is a Chinese proverb that says that every journey of a thousand kilometres starts with a first step. And I guess that first step was taken in Singapore, discussion and meeting are always better than confrontation. But, boy, the devil is in the detail, there is going to be a long way to go. We have to see how this particular impatient US president is going to sustain the momentum, and we have to see how his promises are going to be implemented. So, it’s going to be a long march.
SS:Should China be wary of this rapprochement between Washington and Pyongyang?
JW: Well, China was always playing a very constructive role, frankly speaking, all the way to the point that actually they donated the prime minister’s plane to get Kim Jong Un to Singapore. They still want to be in the game. They’ve certainly hoped that tensions will be lessened. They have already eased the sanctions. China benefits from this.
SS:Does this progress on the North Korean issue show that US sanctions and Trump’s pressure worked?
JW: Oh that’s difficult to say. I guess that he was trying to commit to something where we actually don't know if it’s open-ended and if it’s going to bring a success. Again, we’re all in the region are very happy that this kind of “fire and fury” that he was talking about is gone. Because, keep in mind that we talk about nuclear weapons here - so, I don’t know. Kim has played his stand very cooly - we have to see how that all ends. Again, first step to a thousand kilometres to go.
SS:So Trump is slapping tariffs on EU steel and aluminium, and Europe is far from happy over the move. Emmanuel Macron has called the US tariffs illegal and at the recent G7 summit said that six countries in a group without the United States “represent a real force”. Is Europe ready to duck out and go it alone without the United States, or are Europeans just bluffing to get an upper hand in the trade talks?
JW: Well, for us Europeans it’s all a new thing that the Pax Americana is coming to an end - the old mechanism where we all had a common understanding of free trade has reached a point where it’s actually quite disappointing to see that the US is launching steel tariffs on security grounds against its allies. Well, first of all, I guess, it unites Europe. The kind of meeting in Canada will bring Japan, Canada and European Union much closer together. As we have seen, Trump is pretty much isolated. And we have to see how the issue of steel and aluminium will be dealt with. Because Europe will take the US to WTO and, I guess, in view of the fact that 50 percent of the overcapacity globally comes out of China in steel and aluminium - by the way also hurting Rusal and Russian industries - how that is being dealt with. So, Trump decided to safeguard a hundred and forty thousand jobs and challenge a couple of millions in the car industry. I am not sure if that was an economic smart move either.
SS:So, do you think Trump will even care if he’s isolated by his European friends?
JW: Well, it seems like he takes credit and takes strength out of this given his consistency that he is whacking around his former allies. But I guess that, you know, he’s ruling with a system where there is a congress and other bodies of the government and there are still lots of connections on a working level trying to see how we can actually sort of cooperate on a lower level, but with Trump a lot of porcelain has been damaged. It’s going to be really difficult.
SS: According to the Dutch bank ING, the exports of steel and aluminium to the United States make up to just 0.3 percent of worldwide goods exports from the EU. Now the EU is imposing retaliatory tariffs from July on US motorbikes, whiskey, fishing boats. It doesn't look pretty serious to me right now. But the United States will probably take retaliatory steps and these tit-for-tat actions could end up really bad. I mean, Trump may eventually slap tariffs on the EU car industry, which would be a catastrophe for Germany, for instance. So can Europe control this mess? Would it be cheaper for the Europeans to just swallow the American measures and end this before it escalates?
JW: Well, I guess, the first step of sanctions, of course, is not very heavy and not very strong. Unless you like bourbon and you like to drive a Harley-Davidson motorcycle than, of course, it hits you full-fledged. But at the same time, you know, the German car industry is a heavy investor in the United States, in South Carolina, for example. And actually the German car manufacturers are the biggest exporters from the US into China. So, I guess there will be a lot of rhetoric and a lot of noise coming out of the White House - too many German cars on the road. I guess that Trump eventually is going to do something different. This is all very much rhetoric - I wouldn’t read into this. It’s the investment climate - the Americans have a strong interest to remain attractive to the Europeans. After all, more than a hundred billion dollars is invested from Europe into the United States. So, let’s see. I think, this is just a first round, Trump wanted blood on the floor - this is what he got. But I think the second round is going to look different.
SS:So, Brussels is opening a case against the United States with the WTO. Now back in 2003, the organisation designated US steel tariffs imposed by the Bush administration as illegal. How likely is that the WTO will reach the same decision this time around? I mean, if it rules against Washington, would Trump abide by the ruling?
JW: Well, the WTO luckily is still functioning despite the fact that US has been reluctant to nominate people for the panel, which is vital for survival of the WTO in order to have enough judges that are actually able to do cases on the panel. But beside this, some you lose, some you win; and in this case, I guess, Europe has a pretty strong hand in order to go against European or Canadian steel exports into the United States on security grounds. I can’t imagine that it holds water. But again, this WTO case will take a long time: one, two, even three years, and we have to see. So, the immediate impact is - European steel will be more expensive than the US one, and Europe will basically have to pay more in order to have a decent Tennessee whiskey.
SS: So will this whole situation bring the EU and China closer together? I mean, EU foreign policy tsar Federica Mogherini has already said that ties between the bloc and China are more important than even before. Is she hinting that EU may turn to greener economic pasturers in the East if Trump keeps this up?
JW: Sophie, that’s very hard to say because, of course, the US is our ally, Pax Americana has been safeguarding our economic architecture around the world. And then, you deal with a climate agreement in Paris and the next thing you see this is all blown apart. You have the agreement in Iran, next thing you see this is blown apart. China has been a solid supporter in Paris as well as in the Iran deal. And now, both of us - Europe as well as China - strongly believe in multilateral actions in the WTO and so forth. So, in a funny way it looks like we have far more in common with China than with the US. But don't forget underlining that the economic system of Europe and America are very much alike. So, let’s see. Sometimes, honestly, Sophie, it feels like we’re a bit in a nightmare.
SS:So, Europe stands to gain a lot in theory from China’s One Belt One Road megaproject. Can the promised profits from EU-Asia land trade offset EU-US trade partnership?
JW: No, by no measure. One Belt One Road initiative from the president Xi is... When you look at the Eurasian you might call it from Moscow the kind of going from here via the stans into Europe, this is very minor. We talk about 70 million people as customers in between - it’s a lot of infrastructure. The maritime Silk Road is far more interesting because China has developed customers in ports and other infrastructures there, but nothing can substitute the US as a market, nothing can substitute Europe as a market. This is all small notion; and we have to see how we position ourselves as Europeans with this One Belt One Road initiative, where we welcome it and where we voice our concerns.
SS:So, at the same time the EU trade chief, Cecilia Malmstroem is targeting China, alleging foul play with technology transfer rules. What kind of leverage does Brussels have over China and is it doing the right thing by being tough to everyone who don't play by the rules?
JW: Well, I guess that it has built up over the years and it was bound to come. China is in the WTO since December 2001. Its promised opening up has not really fallen through many areas. And now we basically have a situation where China is four-five times bigger investor in Europe than the Europeans are investing in China. Resentment is increasing to say: “How come they can do everything in Europe, and we can still do very little in China?” So I guess that’s why Cecilia Malmstroem who is a very able Commissioner took the initiative in order to clarify this, and there has to be a consequences. China has been too mercantilist, has been playing this game for far too long and this is one of the few areas where actually, I guess, you have US officials and European officials coming out of meetings with the same conclusions: China has to open up.
SS:So, Trump is saying that Europe and Canada have been playing with US for years with their own tariffs and that he’s only correcting things that were unfair. Do you agree with him?
JW: Of course, not. There has been a common understanding about open markets. The European Union is exceptionally open. Canada has been a very good partner to the United States in the NAFTA agreement. There’s a lot of rhetoric coming out of their counterpart with virtually no economic understanding. It’s very sad to see this kind of noises coming out of the White House.
SS:So, let’s get to the bottom of this. Who started this mess? I mean, US and Europe say China breaks the rules as it limits investment and steal technologies. China and Europe say the US breaks the rules, slapping tariffs on their goods. And the US says China and Europe also have their own tariffs, and so they’re to blame. So who really bears the responsibility for this stand-off?
JW: Well, at least we all agree that someone else is to be blamed - it seems to be the common denominator. Basically, China has been in many ways a good partner for the Europeans. But the kind of technology grab that happened with the request of technology transfers for European companies to China, the kind of lopsidedness of using the market for getting Europeans into the market, I think that China possibly has actually overplayed its cards. I think, Cecilia Malmstroem, the European Commission and the member states have a good reason to challenge China on this one. And I guess that the recent noises out of Beijing indicate that China is moving and opening up some sectors faster than many people believe. When it comes to the US-China, frankly, there’s nothing we can anticipate because there is a lot of flip-flop coming over. We have a deep relationship which, I think, will survive this administration. But also we have a relationship which is now being challenged; and we have to see how we can contain the damage. Again, the whole discussion on protectionism, the whole blaming everyone else is taking place with a background of extremely strong economic growth. We have full employment in the US. We have full employment in Europe. Economy-wise it can’t get better than this. This is not going to last, this might actually lead to a slowdown next year. In particular as Trump has put the American economy on a sugar high given the tax refunds and then the next year the economy may slow down. And then, the sanctions talk - the kind of “I blame you” - will actually really start to bite the real economy. So the politicians have in a way a nice backdrop in order to talk about all of this because sanctions are not as predominant. But if the economy slows down, then it’s really going to hurt.
SS:So, what would the world economy feel if the US and China, the world’s two biggest economies lack horns and the EU is caught up in this mess? The American tariffs on European goods have already led to one Great Depression in the 1930s. Is there a real risk of another one?
JW: At this stage no. Look at my own country Germany - the economy is on the verge of overheating. At that time we had a very different setting: high debt. Europe doesn't have high debt, you have very protective borders, the tariffs are very low at this stage. So, luckily we’re not anywhere close to the 30s. But, of course, it’s concerning - it could well be a slippery slope where the two largest economies of the world - Europe and the US - are basically struggling it out and the third one is also locked in a trade war. Frankly, I can’t see this coming. I think that at one stage, particularly with a slowdown of economy in view there is going to be some reasoning. Yes, there will be damage, yes, there will be supply slide. The struggling companies will be stressed out, and certainly some consumers will be paying more in the US, in Europe, and frankly also here in China. But eventually I think that reasoning will set in but maybe I am to leave on this one.
SS:So, United States obviously wants to cut China’s access to high-end technologies. And you said that what’s happening now is a war for innovation, not a trade war. If that so, who is going to come out of this winner?
JW: Yes, that’s real serious issue. Trade discrepancies throwing threat of soybeans tariff increases. So again, Harley Davidson and Tennessee whiskey together is not really much of a derailing force. But technologies, this is what really the system, the Congress, the Pentagon, deep down in the US people want to withhold from China for the reason that China has been catching up very fast and came out with a program called Made in China 2025. My former organisation, the European Chamber, made a very distensive study showing that China wants to be a global leader in 10 years from now. And given the fact that this is all state-sponsored and this is all state-guided we are worried about that market forces will be killed in the process. So, the way how to maintain superiority in the US and possibly also in Europe, in comparison to China, this is a big topic; and China, I am sure is pretty much aware of this. So, yes there will be a concerted attempt more or less in order to see which technology flow to China and which don’t.
SS:So the world around us is being so loose with barriers and borders. Can you really slowdown the transfer of technologies across the globe these days? I mean, with so many ways to share the information there is going to be a hole in any wall you build, no?
JW: I guess that honestly even despite the Internet and speed of flow and everything - it’s possible. I mean, you start with restricting Chinese companies of investing in the US. Access of Chinese companies to Europe has been exceptionally open, this might change. And than, of course, Chinese companies can’t buy these companies they want to buy - which they’ve outlined in their Made in China 2025 strategy, that they want these companies in GMO, in robotics, in semiconductors. To grow China has to have technology access and this is not just done by hacking or stealing. China wants a genuine development there, and hence that will be made more difficult and can go down the road of preventing the European and US companies from investing in certain areas. In all the way - and that seems to be a discussion in the US right now that you are constraining Chinese students to study in certain areas in the US as well as constraining US citizens working in China. I mean, it gets really personal at the end, and the losers will definitely be on both sides.
SS:So whatever is going on right now, you’ve touched upon this earlier, how exactly is this all going to affect us? How will this mess impact an average Joe?
JW: I think, Joe Six-pack in the US will possibly pay more for a couple of items. The Chinese have been targeting areas which basically hurt the farmers - soybeans one of those. The Chinese have been clearly identifying in the swing states of the Republicans on Donald Trump’s backyard where it might hurt the most. The Germans and the Europeans have done the same thing. So, you can actually expect Joe Six-pack in particularly those swing states to take a hit. I don't know how the President is going to sell this as an advantage. And than of course, car manufacturers will have to pay more for steel that would make their cars less competitive on global markets and in Europe as well. I mean, tariff is taxation on average people, it depends on which area it is. And at the same time the kind of withholding of technologies - we earn money from our knowledge. We sell licenses, we sell technologies, we want to cash in on this. And basically, getting told not to do this is hurting business profits. So, overall it’s not a pretty sight, frankly.
SS:So why is it that just recently there were deals that worked and would have globalised the hell out of Trans-Pacific and Transatlantic trade and it seemed like the free trade deals were in vogue and just a few years later all these free trade deals are dead and everyone is going protectionist? What’s going on, what’s happening?
JW: It’s very easy - Trump is elected. But you know it’s a shame that TPP fell off the table. Because TPP was an excellent Asian-Pacific agreement not just on lowering tariffs - that’s way beyond it, to agree on level standards, to agree on free information flow, to agree also on environmental laws - because all of that is something where a lot of countries actually abide by the international rules, and in particular, of course, it was targeted on China. The Chinese as always don’t. So, in a way there was an attempt in order to get the whole Pacific Rim to agree on a certain level on production - this is the quality we have, this is good for our people. And Trump threw this out five minutes after he took office. So, he now says that he is reconsidering this. I think, it was a massive blunder. And it has caused certainly his allies to think about how reliable the US is as a contractual partner. When you also see that US agrees on Paris and on Iran and pulls out of that - if I am Kim Jong Un from North Korea, I would think five times before signing up something with Trump, because I don't know if the guy is going to keep his promise in the first place.
SS:So, economists of course are crying foul, warning that messing with free trade is bad. But if the free trade approach just doesn't benefit ordinary people if normal folks don't see their share of global profit, maybe the free trade thinking isn’t the way go?
JW: I guess that all of us in the West, particularly the Europeans, have just started this process, have to do some soul searching. Globalisation was like a goddess that was definitely going to benefit everyone, it’s a good thing and it became very ideological. But it didn't benefit everyone. Some people got very rich very fast; and other people haven’t seen a salary increase in 10 years. So, globalisation, I guess, should be viewed a little bit more in separate colours. It has left losers behind; these losers are voting against it. We have to see how it integrates those people again. Globalisation as such will have to go through a redefinition, I guess. And it’s not going to be the solution to everything. At the same time, protectionism is not the answer to all of this. It’s just that the running elite, the rich guys, the bankers, many business elite have possibly never thought about Joe Six-packs in whatever country not benefiting from this. And this is a payback time now.
SS:Alright, Mr. Wuttke. Thank you very much for this insight. It’s been great talking to you. We were talking to Joerg Wuttke, a former a president of the EU Chamber of Commerce in China talking about a possible three-way trade war between the US, Europe and China and what will it mean for the global economy.