German Federal Government Tries To Prevent the Worst

Shortly after its start, the German federal government is trying to prevent the worst aspects of the trade conflict with the U.S. by means of travel diplomacy. Federal Minister of Finance Olaf Scholtz (of the Social Democratic Party) rushed to the summit of the Group of Twenty industrial and emerging market-nations in Argentina for his first encounter with U.S. colleague Steven Mnuchin. Minister of Economic Affairs Peter Altmaier (of the Christian Democratic Union) flew across the Atlantic to meet with everyone in the U.S. government who has a say in the tariff matter and who is open to dialogue. Chancellor Angela Merkel (of the CDU) reached for the telephone over the weekend to explore common ground with China’s President Xi Jinping.

Threatening tensions in the world economy hit the German export nation at an awkward time as Berlin politics were primarily busy with itself. The European Union Commission, which is formally responsible for trade questions anyway, quickly positioned itself against President Donald Trump. That doesn’t suit Merkel. The trade associations as well as the labor unions are pressing for handling Trump with reason and a sense of proportion instead of harshness and muscle flexing.

Harbingers of a Trade War?

And that’s how it went with the hectic efforts that now appear lost. Since last week, experts in the federal government believed they had found a new approach. It is becoming more and more apparent that the trade conflict is quite a different matter than a few tons of European steel. These skirmishes could just be the harbingers of a huge economic war in which the U.S. and China wrestle for technological leadership of the 21st century.

In the course of this, Alibaba, Tencet and other giants of the People’s Republic of China are challenging Google, Facebook and Apple. With the largest world market behind them, with more data in storage than their Californian competitors, with government support and enormous innovative strength and great persistence, the Chinese are preparing to overtake Silicon Valley in many fields. Former Google boss Eric Schmidt warned that the Chinese would be ahead in artificial intelligence around the year 2025.

Memories of the Cold War

To be sure, Trump is not known to be a friend of Google and Facebook. However, he knows that he cannot defend America’s leadership role in the world economy without them. And thus, last week, he barred a hostile takeover in a key technology, the chip sector. The Asian giant Broadcom wanted to swallow up the U.S. rival Qualcomm. Indeed, Broadcom is not seated in China, but, instead, in Singapore. Nevertheless, Trump’s people justified their intervention with a concern for national security and the fear of a dominance by the People’s Republic. Such a chip giant could provide the Chinese with advantages in the new 5G mobile telephone technology, Washington said.

Some aspects of the controversy are reminiscent of the Cold War. The Soviets, however, could only provoke the U.S. in the military field and temporarily in niche fields like space travel. In the 80s, the triumph of the Japanese automobile and electronics firms triggered fears of an American decline. Yet no country could become as dangerous to the U.S. as China. This rival already has a high technological level of expertise accompanied by a population of billions, with people enthused by technology, hungry for success and education as well as the clear aspiration of being No. 1 among world economies.

Trump Keeps his Word to Voters

In this battle of the giants, Europe could stand at the edge as a laughable third. Who is interested in steel when it is a matter of dominance in the digital age? But it might not end so mildly for the EU. First, an economic war between the No. 1 and No. 2 leaders would affect all. Second, Trump is keeping his word to his supporters. He will hardly forgo tariffs on European steel producers entirely. In addition, the next transatlantic fight is brewing. The new Federal Minister of Finance Olaf Scholz announced at his first G-20 summit that he would support more effective taxation of Apple and Google.

On Wednesday, the EU Commission will present proposals to tap more than crumbs for the European nations’ coffers from the enormous profits of these digital firms. U.S. Treasury Secretary Mnuchin made it clear before the first meeting with Scholz that he understands this to be a declaration of war. “Some of these companies are among the greatest contributors to U.S. job creation and economic growth,” Mnuchin clarified.