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“Very Bad” Germany May Be The Wrong Target

Cons. Discr. - Autos 1074 European Union 743 G20 31 Germany 222 Trade Deals 957 U.S. 5050

As expected the main trade-related controversy from President Donald Trump’s first overseas trip was with the EU over trade, as outlined in Panjiva research of May 7. Specifically President Trump referred to Germany as being “very bad at trade”, according to Bloomberg. This is likely a reference to the U.S. trade deficit with the EU, which stood at $146.6 billion in the 12 months to March 31.

The deficit specifically with Germany was the largest individual component at 43.6% of the total, Panjiva data for U.S. imports and exports shows. However, the deficit with Germany is already 14.5% below its 2014 peak. In the meantime the U.S. deficit with the smaller 24 EU states (ie excluding Germany, France, Italy and the U.K.) has actually risen by 48.0%.

There is room for progress with a “joint EU/U.S. action plan on trade” to be structured according to Reuters. Arguably that should be targeted at all EU countries, rather than just Germany. Firm commitments on timing and ownership (for example like the 100 day program with China or the economic dialogue with Japan) have not yet been forthcoming though. It is also a long way from renovating the Transatlantic Trade and Investment Partnership (TTIP) trade deal between the two.

GERMAN TRADE MAY BECOMING FAIRER

Chart segments U.S. trade deficit ( exports less imports shown as a positive) by counterparty. Right hand axis shows aggregate trade deficit with EU members as a 12 month running total.     Source: Panjiva

In the meantime specific action on individual products cannot be ruled out. The main risk for Europe here may be in automotive exports, which President Trump has been particularly critical of according to Der Spiegel, specifically singling out German manufacturers.

Panjiva data shows that U.S. exports have lagged imports, with a 8.5% rise in exports in the past 12 months compared to five years earlier, while imports have increased 36.8%. German exports to the U.S. meantime increased by 12.4% over the past five years but actually fell by 15.9% in the past year. That partly resulted from the move to produce in the U.S. by exporters including Daimler and BMW. The more significant drivers of import growth have been Japan (27.5%) and Mexico (62.2%). A more recent downturn, as evidenced by falling sales of both domestic and imported vehicles, is unlikely to detract from the longer term trend.

EXPORTS LAG IMPORTS, BUT THAT’S NOT DAIMLER’S FAULT

Chart compares U.S. automotive imports, segmented by country of origin, over the past 12 months to a year earlier and five years earlier. Bubble size indicates shipments by value. Colors for clarity only. Green bubble indicates U.S. exports. Source: Panjiva

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