The US President's tough trade policy is scaring off investors and creating new opportunities for Europe and Germany. But are they being exploited?
Time is running out: August 1 is the deadline for US President Donald Trump. Then 30 percent tariffs will be imposed in a trade dispute with the European Union if there is no resolution to the tariff conflict with the Europeans. Trump had initially threatened the EU with punitive tariffs of 50 percent starting July 9. But two days before that date, the White House extended the deadline until early August. Negotiations with the European Union are ongoing.
It remains to be seen whether the US will escalate with higher tariffs. It is also unclear what measures the EU would respond with. But despite the great pressure exerted by the US administration under Trump in recent months, international investors are now viewing the US economy with more skepticism and, at the same time, are showing growing interest in Europe - and especially in the EU's largest economy, Germany.
While the S&P 500 US stock index has gained only about seven percent since the start of the year, the German stock market barometer DAX has risen by almost 20 percent, setting new records in the process. Since Trump took office, the US dollar has lost more than ten percent of its value against the euro.
IMF and Federal Reserve criticized
The United States is facing criticism: The International Monetary Fund (IMF) has criticized the possibility of the US debt spiraling out of control. The President of the German Federal Bank, Joachim Nagel, warned at the G7 financial summit in Canada of new turmoil in the financial markets if the trade dispute with the United States is not resolved. "Sometimes, on certain days, I had the feeling that we were not far from a drastic crisis in the financial markets," said the head of the German Central Bank. Earlier, it was the Deputy Managing Director of the IMF, Gita Gopinath, who had warned in an interview with the Financial Times that the US budget deficits were too large and that the country had to cope with the "ever-increasing" debt burden.
According to the U.S. Treasury Department, the United States has a massive debt mountain of more than $36 trillion. Last year, that amount reached more than 120 percent of gross domestic product (GDP) — almost double the debt ratio of Germany. New debts are added every year.
The US is increasingly viewed critically
Economist Hans-Werner Sinn believes that the scope for the current US debt model is shrinking. "Americans need to tighten their belts. This standard of living, this world of shopping malls and few factories, can no longer be sustained in the long term," the former president of the Munich-based Ifo Institute told DW.
The chief economist of the World Trade Organization (WTO), Ralph Ossa, says he can understand why the US is looking for ways to reduce its trade deficit with the EU. But he also shares the views of most of his colleagues. "From an economic perspective, all economists basically agree that tariffs are not the right tool to address trade deficits," Ossa told DW.
Ossa compares the US approach to a private individual who buys more than he earns through his work and therefore goes into debt.
"And if I, like Ralph, have a debt problem - for example, because I buy too many cars - then it's definitely an option to tax cars so that I don't buy as many. But it's definitely not the most direct way to address the problem," says Ossa, describing the US approach.
The atmosphere towards Europe and Germany is changing
Trump's aggressive trade and tariff policies are scaring investors away from Europe. Stefan Wintels, head of Germany's state development bank KfW, said in a recent interview with the Handelsblatt newspaper that "I see in promotional activities on the streets in New York, London and Zurich that international investors' interest in Germany is growing. Many institutional investors are over-invested in the US and would like to invest more in Europe and within Europe, especially in Germany."
In just a few months, the mood towards Europe and Germany has completely changed among international investors. "In more than 30 years of professional experience, I have never seen such a rapid change in mentality. We must do everything we can to use this positive moment for Germany and Europe," said the CEO of KfW.
Europe is also attracting international investment giants such as Blackstone, the world's largest alternative financial asset manager. Blackstone CEO Steve Schwarzman announced plans to invest up to $500 billion (€437 billion) in Europe over the next ten years. At a time of geopolitical turmoil, Europe is becoming increasingly attractive to investors - not least because of multi-billion-euro investment packages for infrastructure and defense in Germany.
"We see this as a great opportunity for us," Blackstone's Schwarzman told Bloomberg TV in early June. "They're starting to change their approach, which we believe will lead to higher growth rates."
Germany investment magnet
Europe is already benefiting from the new perspective on the old continent. At the "SuperReturn International" investor conference in early June, thousands of large investors gathered in Berlin, including pension funds, insurance companies and sovereign wealth funds from around the world - with assets under management totaling around 46 trillion euros.
According to Bloomberg, managers from major investors such as BC Partners, Permira and Brookfield Asset Management spoke in favor of Europe as an investment destination due to rising global economic risks. And New York-based financial giant Apollo Global Management, which has already invested about $100 billion of its roughly $800 billion in assets in Europe, plans to get even more involved, particularly in Germany, over the next decade.
"We see the potential for $100 billion in investment in Germany alone over the next 10 years," Apollo President Jim Zelter told the Financial Times, adding that this is "a figure that will be difficult to surpass anywhere in the world."/ DW (A2 Televizion)
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