The Gathering Storm Part 2: Latin America and the Coming US Trade War

The threats and public attitude of Donald Trump are driving Mexico into the arms of the now rising New Federal Europe.  Mexico faces economic disaster if Trump follows through on his threats of funnelling billions into the hands of this Establishment friends for a boondoggle wall and trying to make Mexico pay for it; including the threats of ending NAFTA as it presently stands and Mexico  is reaching out. 

As the New Federal Europe comes together with papal influence and support, it is only natural that Mexico would reach out to Europe and its moral roots in the papacy for deliverance. 

Where would a threatened Mexico and the rest of Latin America go for help in their time of need, but to the papacy and the New Europe; especially if Spain and Portugal join the New Federal Europe of ten nations now rising?

Besides the threats against Mexico, the Trump administration is also threatening a trade war with the European union.  Most certainly there are definite problems and Trump has complaints, but his blustery belligerence is not the way to handle them. 

Right now the EU is in crisis and it may seem an opportune time for Trump to make demands, but the European issues are on the way to resolution and when the New Europe does rise, a trade war will break out with the USA. 

A trade war that the US cannot win, because the Arab States will abandon the Petro-dollar in favor of the New Europe, Latin America will turn from the USA and into the arms of Europe and the massive American debt will bring that nation crashing down into complete economic collapse.

MEXICO Responds to Trump Threats  – The Mexican government is pushing to rapidly modernize its free trade agreement with the EU and has declared its “close affinity” to Germany, following US President Trump’s threats of massive reprisals by building a wall at the border and imposing punitive tariffs. Because of its extreme dependence on the USA, Mexico can only hold its ground by intensifying its relations with other countries, according to Mexican Foreign Minister Luis Videgaray. Mexico’s enticements are greeted with sympathy by German business circles. The majority of German firms active in Mexico had already decided on new investments and is planning to carry these out, despite expected disadvantages from the projected US trade policy. Experts assume that the US administration cannot afford excessive punitive tariffs or other exorbitant escalations. At an appearance last week in Mexico, Siemens CEO Joe Kaeser ostentatiously announced investments worth US $200 million and signed an agreement of intent with Mexico’s Minster of Economics for infrastructure and industrial projects with a possible volume of up to US $36 billion.
Existential Threat
If implemented, US President Donald Trump’s chauvinist provocations against Mexico could become an existential threat to that country. Preceding US administrations had already sealed off the borders between the two countries with highly militarized border fortifications – comparable to the razor wire barrier around the EU exclaves Ceuta and Melilla. In spite of this fact, constructing a wall along the full length of the border and demanding Mexico to pay the costs, shows nothing but contempt for the neighboring country. The chicanery that will most likely accompany the construction of a wall, will affect “the busiest border worldwide,” with 50 million pedestrians, as well as 74 million cars and 5 million trucks crossing annually, notes the German Institute for International and Security Affairs (SWP).[1] This would provoke immense social damage, compounded by an unpredictable extent of economic devastation, should the US government impose punitive tariffs on imports from its southern neighbor. With its participation in the North American Free Trade Agreement, NAFTA, Mexico was forced into a nearly complete dependence upon the United States. Over 80 percent of its exports are to the United States. This is all the more serious because exports make up one third of its GDP, which is unusually high for countries in Latin America. The expected dramatic slump in exports, resulting from the new tariffs would have catastrophic consequences. The automobile sector alone – which would be particularly threatened – accounts for more than one-third of Mexico’s total exports.
“Close Affinity”
The Mexican government is reacting to this threat with a dual strategy. On the one hand, in preparation for a possible reformulation of NAFTA, Mexico began to systematically assess its economic interests and announced that it will be ready for negotiations in June. Minister of Foreign Affairs, Luis Videgaray, and Minister of the Economy, Ildefonso Guajardo, arrived yesterday in Canada to explore a common strategy in the power struggle with Washington.[2] On the other hand, the government in Mexico City has begun to explore alternatives. According to Foreign Minister Videgaray, the government has already opened “formal talks” to initiate “trade agreements with Brazil and Argentina,” while striving to modernize the free trade agreement with the EU “already this year.”[3] Videgaray leaves no doubt that Berlin would play an exclusive role. “Germany has always been a strategic partner for Mexico,” he declared. “Germany and Mexico currently have a close affinity in our policies confronting protectionist threats. … Without a doubt, this will draw us closer together.” Following his first talks with his German counterpart Sigmar Gabriel, Videgaray said, “this is a relationship of trust, which we want to reinforce.”[4]
On the Verge of New Investments
Mexico’s enticements are being quite positively received in German business circles. According to a poll taken by the German Foreign Chambers of Commerce (AHK), 83 percent of the 1,900 German enterprises active in Mexico, part from the premise that the new US administration’s trade policies will backfire.[5] However, a clear majority does not expect losses, which, in principle, would threaten their activities in Mexico. Germany’s Trade and Invest (gtai) foreign trade agency assumes that Trump can not allow the situation to escalate excessively. NAFTA forbids customs tariffs, which the free trade-oriented Congress would, in any case, be called upon to pass. Even if the USA should withdraw from NAFTA, it would still be bound by the rules of the World Trade Organization (WTO), which limit import tariffs on automobiles to a maximum of 2.5 percent. Import tariffs would furthermore seriously affect many powerful US companies, and Mexico’s countermeasures would mainly affect the rural areas of the USA, “with a particularly large share of Trump’s supporters.”[6] The AHK reports that German enterprises in Mexico are hopeful that there will be no earth-shattering changes. According to the report, even 62 percent of the German enterprises in the country plan new investments this year; 43 percent seek to maintain their current staff, while 46 percent intend to increase it.[7]
“Very Grateful”
Recently, Siemens ostentatiously announced an expansion of its business in Mexico. The company is in an advantageous position. On the one hand, with more than 60 factories in the United States, with over 50,000 employees, it has a strong stand. On the other, its production in Mexico is hardly for the US market, and therefore would suffer much less than other enterprises from punitive tariffs.[8] At the same time, as its CEO for Mexico, Louise Goeser, declared, the company sees Mexico as “one of the most interesting markets ever.” In 2015 and 2016, Siemens-Mexico – with around 6,200 employees in nine factories, two logistical and three research centers – was able to achieve a 41 and 32 percent growth in business, respectively, to approximately €1.5 billion.[9] Last week, at a very prominent appearance in Mexico, Siemens Director Joe Kaeser and the country’s Minister of the Economy, Guajardo signed a declaration of intent, stipulating that both sides want to engage in major projects for the development of Mexico’s infrastructure and its core industries – with a volume of up to US $36 billion in the course of the next ten years. It remains unclear how large Siemens’ share will be, even though, as a preliminary step, Siemens Group CEO Kaeser has announced US $200 million in concrete investments in the course of the next ten years. A thousand jobs will be created. Economics Minister Guajardo was quoted, “we are very grateful for this visit at this time.”[10]
Year of Germany
Kaeser’s appearance in Mexico made a particular splash in the aftermath of Washington’s change of government. However, the step had been planned much earlier. The German government has also been making efforts to support the German companies’ upsurge in Mexico, long before the US elections. One example is the “Year of Germany in Mexico,” an element of German cultural PR, inaugurated June 6, 2016, by Germany’s Foreign Minister at the time, Frank-Walter Steinmeier. As the foreign ministry explains, Germany was showcased to the Mexican public, in more than 120 projects, with around 1,000 events, “in all its aspects” to intensify bilateral contacts at all levels.[11] Of course, at the time of the inauguration of the “Year of Germany in Mexico,” it could not have been anticipated that a future US president would drive Mexico into the arms of other countries, with his rude threats, and unintentionally promote the rapid expansion of German-Mexican relations.
In the looming trade war between the EU and the USA, Brussels is threatening to officially denounce the United States as a “tax haven.” The EU Commission is currently preparing this affront to the world power, following Washington’s strong criticism of Germany’s excessive trade surplus. In the six years, from 2010 to 2015 alone, this surplus has led to an outflow of nearly a quarter trillion euros to Germany from the United States because of the “grossly undervalued” euro, according to Trump’s trade advisor Peter Navarro. This has been confirmed by the Bundesbank’s recent analysis, showing that through its monetary policy the European Central Bank (ECB) has contributed to the euro’s undervaluation, which in turn has facilitated record German exports and the large US deficit. The trade conflict is flanked by a propaganda offensive against the Trump administration, exploiting the new US president’s racist and chauvinist policies to designate him as an enemy. This conflict could lead to the first major power struggle between Germany and the United States since 1945.
A Quarter Trillion in Surplus
The development of trade flowing between Germany and the USA over the past few years, illustrates the main reason behind the looming transatlantic trade war. German exports to the United States valued at 65.5 billion euros in 2010, reached 114 billion euros in 2015, an increase from 7.5 to 9.5 percent of Germany’s total booming exports. Since then the United States has become the most important sales market for German companies. Simultaneously, Germany’s trade surplus with the USA has risen from 20.5 billion euros in 2010 to nearly 54.5 billion euros in 2015. For German companies, this is highest surplus, in comparison to those accumulated through trade with any other country – an outflow of 225 billion euros to Germany from the USA. In just six years, the USA has contributed nearly a quarter trillion euros to German prosperity.
Rebuffed
For years, Germany’s persistent export offensive has been provoking Washington’s hefty criticism. Already during his first year in office in 2009, President Obama demanded that Berlin take action against Germany’s excessive trade surplus, which, since 2006, has continuously been just above the six percent threshold of the GDP, which is considered a threat to stability in the EU. In 2015, it had climbed to 8.8 percent of the GDP. Berlin has constantly rebuffed Washington’s complaints. In early 2014, when US Treasury Secretary Jack Lew complained about the German surplus to his German counterpart Wolfgang Schäuble, who admonished, “we do not engage in talks for mutual evaluations, but for better mutual comprehension.”[1] US President Donald Trump has now made it clear that he will not continuously accept the outflow of two to three digit billions. He has already openly threatened Mexico and China with punitive tariffs, two countries, which are also accumulating a high trade surplus with the USA. Even punitive measures against Germany are not ruled out.
Punitive Tariffs because of Currency Manipulation
US punitive measures against Germany could even be based on a long-standing US law. The Bundesbank recently shed light on the reason: The Bundesbank had investigated the foreign exchange markets’ reactions to the ECB’s lax monetary policy, for the three years – 2014 to 2016. In its struggle against the euro crisis, particularly the ECB’s extensive eurozone bond purchases had led to a sharp devaluation of the euro, by 6.5 percent in relationship to the US dollar during that period. This has considerably contributed to the overall – approx. five percent undervaluation of the euro, reiterated the Bundesbank. Even though the ECB is officially not allowed to pursue an exchange rate policy, in practice, the declining euro rate, which is driving eurozone exports, and thereby improving Europe’s economy is to its advantage, observers note. This procedure, however, gives Trump the possibility “to accuse the ECB of currency manipulation and apply sanctions to eurozone countries,” according to the Bundesbank’s report on its investigations.[2] The author points to a 1977 US law allowing him to levy, “by executive authority, trade tariffs against individual industries or the entire eurozone countries at short notice.”
On Tuesday, Trump’s top trade advisor Peter Navarro gave his opinion on the trade deficit with the EU, and particularly Germany. The euro is “grossly undervalued,” he observed. Most experts agree with him on this conclusion. Since some time, Germany has been using a grossly undervalued euro to “exploit” the US and its EU partners with export offensives, continued Navarro. For example, Great Britain, with its enormous trade deficit with Germany (196 billion Euros from 2010 to 2015), is also propping up German prosperity. Mr. Navarro’s comments highlight a growing willingness by the Trump administration to antagonize EU leaders and particularly the German chancellor by launching an export offensive.[3]
Tax Haven
Now, Berlin and the EU are retaliating. As was reported, this week, the European Union will write to American tax authorities, asking for “clarification” on areas of taxation policy. Brussels is currently compiling a blacklist of “countries with uncooperative tax policies,” accused of tax evasion or even facilitating money laundering. The USA could be added to this list, it is warned. Some US states – Delaware and Nevada, are explicitly mentioned – attract companies and high-net worth individuals with special tax arrangements. Some US states even allow the holders of escrow accounts to remain anonymous – a perfect recipe for financial crimes. For many years, the European Union looked the other way, unwilling to annoy their most important ally. However, with Donald Trump’s inauguration these times are over. If the USA does not provide satisfactory responses to the EU, the EU could officially add the US to a black list of tax havens, an affront, until now hardly imaginable.[4]
Designating the Enemy
The looming trade war between Germany and the EU on the one hand and the USA on the other is flanked by a growing wave of propaganda exploiting the racist and chauvinist policies of the new US administration to designate it as an enemy. Members of the German government have repeatedly denounced the targeted discrimination of Muslims, with the notorious US immigration ban. In an Open Letter published on Tuesday, European Council President Donald Tusk named the Trump administration a “threat” to the EU alongside China, Russia and the “terror in the Middle East.”[5] These verbal attacks against Trump’s aggressions are in stark contrast to the EU’s generous silence about the more than 5000 refugees, who drowned in the Mediterranean last year attempting to flee to Europe, or the nearly 800 civilians killed by drones in the Middle East and Central Asia under the responsibility of the Obama administration. However, those attacks against Trump are helping to mobilize the German population for the looming first major power struggle against the USA since 1945.
For more information on this subject, see: The Moment of the Europeans, Leader and Followers and In the Name of Europe.
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