Don’t Take His Bait! A German Call Not To Retaliate Against Trump’s Auto Tariffs

-OpEd-

BERLIN — It is so easy to get angry at U.S. President Donald Trump. And in most cases, that anger is entirely justified. Sometimes, it is so justified that one might forget what Mephistopheles tells Faust: that he is part of that force which always intends evil but always ends up creating good.

This does not mean that we should assume that Trump has good intentions toward Europe. But he has done more to advance the long-overdue project of a European Defense and Security Union than all European politicians of the past 20 years combined. And Trump’s tariffs on European cars even prove beneficial for Europe and for the world if the EU manages to resist the urge to strike back and start a trade war with the United States.

How is that possible? According to the theories of economists Adam Smith and David Ricardo, free trade ensures that every country produces what it can make best and most efficiently. The global division of labor benefits consumers everywhere, who get access to the best products at the best prices. And on top of that, trade is supposed to foster change and build friendships between nations.

That is the theory, at least. The reality has always looked different. That same theory once propped up an unjust division of labor between colonial powers and their colonies. China, for example, would never have industrialized and lifted more people out of poverty, faster than ever before in history, without shielding and supporting its domestic industries. Europe, for its part, protects its film industry from Hollywood through subsidies, its agriculture with both tariffs and subsidies, and its manufacturing sector from the Global South, the U.S., and China through supply chain rules and trade barriers.

Inadvertent favor

International competition may encourage innovation, but when it comes to cars, they can just as easily be built in China, Japan, Korea, Mexico, Canada, the EU, Britain or even the US. Yet still, some 24.5 million vehicles are shipped across oceans every year, from China to Europe, from Europe to the United States, and so on. While that may create jobs in the shipping sector, economically and ecologically it makes no sense.

The environmental impact of shipping outweighs that of the vehicles themselves

In fact, in some cases, the environmental impact of shipping outweighs that of the vehicles themselves. A single large container ship emits as much sulfur dioxide annually as 50 million cars. Added to this are greenhouse gases. Due to the strong growth in global trade despite the COVID-19 pandemic and Trump, emissions from commercial shipping, already responsible for about 11% of the transport sector’s total, could increase by anywhere from 50 to 250% by 2050.

If Trump’s policies lead to any drop in these emissions, then the climate skeptic in the White House would inadvertently have done the planet a favor.

German automakers’ bigger problem

There is no doubt that Trump’s tariffs hit Germany’s car industry hard. Last year, Germany exported 3.4 million vehicles, with 13.1% going to the United States. That is around 445,000 cars, or about 60,000 shiploads. But the truth is, German exports to the U.S. have been flat for two decades, while domestic U.S. production of German cars has long exceeded imports. A price increase due to tariffs is likely only to exacerbate this trend.

Second, the main challenge for German automakers is not Trump’s protectionism, but growing competition from cheaper and better cars made in other countries, especially Chinese electric vehicles. These are subject to EU tariffs ranging from 7.8 to 35.3%, the detriment of local consumers.

German automakers have a productivity problem…Trump’s tariffs bring that to light.

Third, German auto production has been falling for years. In 2023, output was down almost 27% compared to 2014. Yet the number of workers in the industry rose by 7%, reaching 767,000. In other words, German automakers have a productivity problem, which makes their cars more expensive than they should be. Exporting to high wage countries like the U.S. and shielding the market from Chinese imports just hides the problem. Trump’s tariffs bring that to light.

This is what it looks like when bad intentions produce some good: a modest reduction in emissions and a clear view of structural problems. Critics will also argue that American consumers end up footing the bill for Trump’s tariffs, and they are right. In the short run, tariffs are just another sales tax. In the long run, protecting domestic manufacturers from global competition reduces the pressure to innovate, which means lower quality for consumers.

Deglobalization vs. protectionism

Tariffs to protect industrial jobs might be politically popular, but economically they are nonsense. In a world increasingly driven by robots and artificial intelligence, the shift toward a service economy will only accelerate. Even Trump cannot stop the growing importance of education, training, digital tools and people skills. In 2023, 72% of German workers were in the service sector, compared to 79% in the U.S. and 81% in the UK.

That is why it would be a mistake for the European Commission, which handles EU trade policy, to answer Trump’s car tariffs with tariffs of its own, whether on vehicles or anything else. A tit for tat response would hit German consumers hardest. And they are already weighed down by high taxes and fees, not to mention the interest payments coming from new special funds and increased defense spending.

Even more important than defending free trade is defending democracy.

This is yet another reason why Europe needs more open competition, not less. Deglobalization may be the buzzword of the moment, but it cannot be allowed to turn into protectionism. That is even worse than imperfect free trade.

Globalism, for all its flaws, still represents the ideal of free exchange, of goods, services and people, for the benefit of all. Protectionism breeds suspicion, nationalism, parochial thinking and, in the worst case, war. If Trump is suspicious, nationalistic, and narrow minded, then European Commission President Ursula von der Leyen and the rest of Europe must not follow suit.

If tensions between the EU and the U.S. spiral into a trade war, there would only be two real winners: Russian President Vladimir Putin and Chinese President Xi Jinping. Europe’s answer to Trump’s vision of giant, inward-looking spheres of influence must be to stay true to the spirit of globalization, without being dogmatic about it. There is no need to carry coal to Newcastle or to flood the U.S. with German cars. Investment incentives that draw foreign companies to Europe are a better solution, just as former U.S. President Joe Biden has shown.

The West must stay

Even more important than defending free trade is defending democracy. That cause is under attack right now, most urgently in Ukraine. But it is also at risk across Europe if Kyiv is defeated. And that means the transatlantic partnership still matters, especially in areas like weapons development and manufacturing.

The United States will remain the leading arms producer and the cornerstone of democratic defense for the foreseeable future. That is why a trade war, especially under such an unpredictable U.S. president, must be avoided. It would only add strain to the already delicate cooperation in military and security matters.

Presidents like Trump may come and go. But the West, built by leaders like U.S. Presidents Harry Truman and Franklin D. Roosevelt, British Prime Minister Winston Churchill and German Chancellor Konrad Adenauer, must endure. That is why geopolitics demand that Europe hold back. We cannot repay Trump in kind. A wiser path would be to do what the English proverb advises: Kill him with kindness.