Germans? Forget it, he’s rolling.
Last week, another move toward a global trade war was initiated, as President Trump spoke of slapping an additional $100 billion in unspecified tariffs on China. The Chinese responded that they will have a very specific list of tariffs on U.S. goods, totaling $100 billion in retaliation. There was a very interesting article in the Financial Times, highlighting just how much of a global economic disaster a real trade war between the U.S. and China would be. The article, entitled “German Manufactures Fear Fallout From U.S.-China Trade War,” highlighted the fact that, “The fear is that the tariffs threatened by the U.S. and Chinese governments, if imposed, will have a massively disruptive effect on the entire complex web of global value chains, harming other nations not directly involved in the trade war.”
From this article, one could say that the biggest casualty would be the economy that relies the most on free global trade, Germany. Harm Germany and you harm the largest economy in the world, the Eurozone. Tack that on with the U.S. and China and you might as well put a deep global recession down on your calendars for late 2018 or early 2019.
What seems to be missing from the president’s calculus is that global infrastructure, labor, and supply chains have become incredibly integrated. For a variety of reasons, a country like Germany, Japan, or the United States will strategically place manufacturing sites around the globe. It could be the price of labor or simply the diversity of global labor. It could be the proximity to either the final destination of the manufactured goods to reduce delivery times and costs or the proximity to whatever raw or intermediate resources are needed, or it could be taxes and regulations. It is really all of the above. The point is, the president can fire a salvo at China and mistakenly hit Germany. In turn, Germany and the Eurozone can hit back, and pretty soon you have a “The Guns of August” situation on your hands, where a bunch of actions produce unintended consequences, and the next thing we know, we are in a World-War-One-equivalent in global trade.
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