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BUSINESS

Top Trump aide blasts Germany for ‘exploiting’ US on trade

A top economic adviser to US President Donald Trump bashed Germany for exploiting an undervalued euro to take advantage of its trading partners, the Financial Times reported Tuesday.

Top Trump aide blasts Germany for 'exploiting' US on trade
Peter Navarro stands second to right of Donald Trump. Photo: DPA

The public rebuke of a major trading partner is the latest example of the brash tactic that has become a feature of the new US administration, with Trump himself using public attacks and Twitter to criticize businesses and allies, including Mexico.

Peter Navarro, who advised Trump during the campaign and heads the White House's new National Trade Council, said in an interview with the FT that Germany “continues to exploit other countries in the EU as well as the US with an 'implicit Deutsche mark' that is grossly undervalued.”

Navarro, a hardliner on trade and especially China's rise, also said the planned trade deal between the United States and European Union – the Trans-Atlantic Trade and Investment Partnership – was dead.

He repeated Trump's statements that the administration will pursue bilateral agreements that favor the United States.

The criticism of Germany is not new as the country has large trade and current account surpluses, and the International Monetary Fund, for example, has repeatedly urged the country to increase spending to boost consumption and the sluggish economic growth in the EU.

Germany is an exporting powerhouse and gains a trade advantage by being part of the eurozone where the currency value is held down due to the weak economies in the union, like Greece, Spain and Italy, economists say. Were Germany to operate outside the currency union, the Deutsche mark value would be much higher, making the country's exports more expensive and less competitive.

However, it is highly unusual to conduct these discussions over policy differences in newspapers rather than behind closed doors.

Trump's repeated calls for Mexico to renegotiate the North American Free Trade Agreement and pay for a border wall on the southern US border prompted Mexican President Enrique Pena Nieto to abruptly cancel a planned visit to the White House.

German Chancellor Angela Merkel, speaking in Stockholm, deflected the criticism, saying the currency value is the responsibility of the European Central Bank.

“As far as the question of the euro and its assessment is concerned, Germany is a country that has always promoted the European Central Bank to make an independent policy, as did the Bundesbank when there was no euro,” Merkel said.

“Therefore we will have no influence over the choices made by the ECB. So I cannot either, in the situation as it is, and I do not want to change anything.”

There has been no comment so far from the ECB.

But France's Finance Minister Michel Sapin hit back saying, “The decisions of the new US administration pose a serious risk to the world trade order.”

He warned that “history reminds us that protectionist retreats are the worst of solutions,” and said neither France nor Europe “will be able to watch helplessly what might risk being a dislocation of our economic institutions.”

Navarro also reiterated that the Trump administration will focus on bringing manufacturing and production back to the US shores.

“It does the American economy no long-term good to only keep the big box factories where we are now assembling 'American' products that are composed primarily of foreign components,” he said in the FT.

“We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.”

The US had a $60 billion trade deficit with Germany for the first 11 months of 2016 – nearly identical to the trade deficit with Mexico – while the deficit with the whole European Union was $134 billion.

BUSINESS

Is Germany’s Volkswagen becoming ‘the new Tesla’ as it ramps up e-vehicle production?

When Volkswagen chief executive Herbert Diess joined Twitter in January, he used his first tweet to warn pioneering electric car maker Elon Musk that he was coming after him.

Is Germany's Volkswagen becoming 'the new Tesla' as it ramps up e-vehicle production?
ID.3 cars in the Zwickau, Saxony production plant in March. Photo: DPA

The bold proclamation raised some eyebrows, coming from a carmaker better known for its 2015 “dieselgate” emissions cheating scandal than its green credentials.

But all that has changed since the German group announced an offensive to dominate the electric car market globally by 2025, vowing to set up six battery factories in Europe by the end of the decade.

“Volkswagen is the new Tesla,” declared the Financial Times, referring to the now dominant Californian e-car group founded by billionaire maverick entrepreneur Musk in 2003.

“Our transformation will be fast, unprecedented and on a scale not seen in the automobile industry in a century,” Diess said at VW’s inaugural “Power Day” last Monday, where he fired off a flurry of announcements.

READ ALSO: Volkswagen to spend 60 billion to transition to electric cars

Industry watchers say it’s a credible bet. Bloomberg Intelligence auto analyst Tatsuo Yoshida said Volkswagen “has (the) potential to overtake Tesla’s number one position… in a few years”.

Karl Brauer, an analyst with CarExpert.com, said VW’s “combination of financial resources and manufacturing capacity make it a prime challenger for Tesla’s dominance” — even if catching up with its US rival is “not going to be easy”.

‘Saving face’

Diess, who has headed the 12-brand VW group since 2018, has never hidden his admiration for Musk, whose brash and unconventional ways have a habit of disrupting markets.

The two men have a friendly relationship and regularly exchange emails, according to an insider.

If the aim of Diess’s carefully choreographed “Power Day” was to capture some of the enthusiasm of a Battery Day Tesla held late last year, particularly in the United States, it appears to have worked.
Diess’s announcements saw US investors flock into Volkswagen shares, including many small traders using online platforms.

In just a week, the Wolfsburg-based car giant gained 15 percent on Frankfurt’s blue-chip stock exchange, giving the group a market capitalisation of more than 130 billion.

The rise puts Diess’s 200-billion-euro target within reach but he has a way to go before matching Tesla’s $619 billion valuation.

VW’s “forced transition” towards more environmentally friendly cars has now been “recognised by the market”, said Eric Kirstetter, an auto sector expert at the Roland Berger consulting firm.

VW ironically owes its change of course to the dieselgate scandal, which forced the group into “a face-saving dive into an all-in electro-mobility strategy”, said Germany-based industry analyst Matthias Schmidt.

The Volkswagen E-Golf in production in Saxony in March 2018. Photo: DPA

Industry watchers note especially its decision to focus on developing a single platform for all its brands which could well be the game changer for the German giant.

The platform was used for the first time on the ID.3 model which launched late last year. UBS analyst Patrick Hummel called it “the most significant bet on electric vehicles made by any legacy carmaker to date” as VW’s competitors are using mostly mixed platforms and a combination of technologies.

READ ALSO: Volkswagen to slash up to 5,000 jobs to fund electric vehicle drive

Not Apple but Samsung

VW’s move is aimed at achieving economies of scale for its 12 brands.

“Tesla is learning what is takes to move into high volume, whereas companies like Volkswagen already have volumes and it’s just a matter of switching volumes from one platform to another which they have done routinely in the past,” said Subodh Mhaisalkar, executive director of the Energy Research Institute at Singapore’s Nanyang Technological University.

But VW’s size also comes with its own disadvantages — consensus has to be found for each major decision not only with the powerful head of the workers’ committee but also with managements of the group’s various brands.

Beyond the core electric technology, Volkswagen is also playing catch up with Tesla on the just as important software.

Ben Kallo, an analyst at US investment bank Baird, believes Tesla will remain the market leader on electric cars because of its advances in battery cell production and autonomous driving.

“VW might not be the Apple but the Samsung of the electric vehicles world,”UBS said in a report.

On Twitter, Diess is still 49 million followers short of Musk.

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