EU Economy Looks to Trump’s Inauguration with Caution
As the inauguration of Donald Trump as the US President approaches, the EU economy is bracing for potential new trade barriers and conflicts. In this context, CDU leader candidate Friedrich Merz is calling for a new attempt at a free trade agreement with the US. “We need a positive agenda with the US, benefiting American and European consumers equally” he told the German Press Agency.
“The new European-American initiative for common free trade could prevent a dangerous tariff spiral” Merz added.
Merz made it clear that he expects the European economy to face harder conditions with the new US administration. “It will be challenging” he said, adding that one should probably prepare for the US to focus on its own interests, such as imposing high import tariffs, as announced by Trump. “But our response should not be to start imposing tariffs too.”
The CDU chairman reported that he has heard from many German companies that they are being approached by Trump’s transition team with offers to relocate to the US. He described the possibilities of tax breaks in the US as a form of subsidy, but also as good fiscal conditions. Therefore, Germany should also lower its corporate tax rate to 25%, he said, adding that this would not be possible overnight, but the country should take steps in this direction to make its location attractive again.
Merz emphasized, “We should not respond to tariffs with tariffs.” Countries that isolate themselves with tariffs or other access barriers are less competitive, he said. “This could also threaten the American economy. And that’s why the right response is to react with innovation and good products.”
Trump had already announced the increase of tariffs during his election campaign. He plans to impose high import tariffs on all goods from Mexico and Canada on his first day in office, as well as additional tariffs on Chinese goods. He also urged the EU to import more oil and gas from the US, and has long been critical of the fact that European companies sell more goods in the US than American companies in the EU.
The negotiations between the EU and the US on a comprehensive trade and investment agreement, known as TTIP, were halted by Trump in 2017 and have been on hold since then.