Felbermayr: europe could hit usa hard in trade war

In a trade war with the u.S., europe could be a serious threat to its transatlantic partner, according to economist gabriel felbermayr.

"We still have rough economic power in europe, and we can fight back if we want to," the head of the kiel institute for the world economy said in an interview with the deutsche press agency. It sounds very warlike. "But the threat of retaliation, for example with countervailing duties, is intended in the first step to prevent the actual use of countermeasures."

Felbermayr expects that in 2020, after the first partial agreement in the trade dispute between the u.S. And china and because of the u.S. Presidential election, there will be a kind of ceasefire after three years of escalation. The opposite is true for the USA’s trade relations with europe. He feared that europe would become the center of US trade diplomacy or trade tensions – "not good news for europe".

U.S. President donald trump has concluded or renegotiated trade agreements with south korea, japan, canada, mexico. "Europe is still missing," said felbermayr, who gave his inaugural lecture as a professor at the university of keel on wednesday evening on the topic of "trade wars in the 21st century. He said that europe should hold its own in the "twenty-first century".

In felbermayr’s view, EU commission president ursula von der leyen must above all make it clear that europe is prepared to use its instruments if the u.S. Or china behave in a manner hostile to europe in terms of economic policy.

As examples, he cited the threat by the U.S. To impose punitive tariffs on cars from the EU. "The more credible the message of countermeasures from the eu ruber comes, the less likely it is that this unfriendly act will come out of washington."

Felbermayr conceded that countermeasures by europe would make little impression in good trade with punitive measures by the u.S. Because europe, like china, has a gross export surplus to the u.S. In this respect, an escalation in good trade would hit europe harder than the u.S. But especially in digital services, europe has a large deficit compared to the u.S. "That’s why the digital tax is one element where we in europe – if it should escalate – can show our teeth to the u.S."

In 2019 – after a european solution failed to materialize – france alone introduced a digital tax for international internet corporations such as google, amazon, facebook and apple. The USA has since threatened to impose tariffs on french luxury goods. However, there have been recent signals that indicate a possible easing of tensions.

Felbermayr cited cell phone operating systems such as android or apple’s ios as examples of digital services. "Each user fee is a service export ultimately of the USA."It is also about financial services, where the u.S. Had a huge surplus, it is about the entertainment industry, about hollywood or the music industry. It’s all about business-related services. "The americans therefore have partly considerable surpluses with europe in many areas of services. But the fastest growth is in the area of digital services."

For the future, felbermayr sees different developments in relations between the three economic power blocs of the u.S., china and europe: "i think it boils down to a kind of war of positions between the u.S. And china, a material battle, if you will. It causes costs for both sides, even if there will be restraint for the next year."Because the first part of the agreement, which commits china to additional imports from the u.S. Of 200 billion dollars a year, is hardly feasible. "I think this phase will fall apart again after two years – and then there will be further escalation."

There were also difficulties of understanding between europe and the united states, and between europe and china. "If europe is strong enough, remains united and has the tools it needs to be credible, we will be able to establish ourselves as a third player – a junior player, perhaps, but a respected force. And that’s why I believe that a balance can be found in this triangle between europe, the u.S. And china, but I don’t see it between china and the u.S."Trade wars are, according to felbermayr in reference to the preuben carl von clausewitz (1780-1831), a mere continuation of politics with other means.