Schröder heads to U.S. as Trade War Looms

Schröder's quick visit to America is all about business, unlike his last trip to the United States in September, when he met with U.S. President George Bush to soothe tense relations following their disagreement over Iraq.

Opting out of any political appointments, Schröder is scheduled to meet with top business leaders to talk up American-German trade relations. But the soaring euro against the U.S. dollar and a disagreement over U.S. steel tariffs will loom large during the visit.

Germany’s ailing economy -- heavily dependent on exports -- grew a meager 0.2 percent in the third quarter, making it important for the chancellor to bolster trade relations with Germany’s second largest trading partner, the United States.

What’s more, U.S. investors have poured billions into Germany, making them the top foreign investors. More U.S. investment could translate into more jobs for Germany, which suffers chronically high unemployment.

Iraq troubles in the past

In an interview given to the news agency Reuters prior to his departure, Schröder stated that he did not believe the trade relationship had suffered negative consequences due to tensions over Iraq. “I don’t see that the Iraq war caused any noteworthy burdens to these ties,” he said. “One should be able to have a different viewpoint among political friends. What is important is that we now look to the future.”

Indeed, Schröder seems to be doing just that, and he is looking to boost trade relations and direct investment in the hopes that the increased revenue will breath new life into the German economy.

“I’m eager to explain my German economic reform program ‘Agenda 2010’ and to promote Germany as a place to do business. We are an attractive place for investors, and the numbers back that up -- especially for American business,” he said. His proposed tax cut alone, claims the chancellor, could free up €22 billion for consumers and corporations, and he expects the economy will grow by 1.5 to 2.0 percent next year.

Trouble ahead: a strong euro and a trade war?

But all is not well. Chancellor Schröder travels to New York at time when trade relations between the United States and Europe are particularly tense. The EU has strongly opposed the steel tariffs President Bush implemented in March of 2002 to protect his country’s troubled domestic industry. Last month, the World Trade Organisation ruled that these tariffs are illegal and ordered Bush’s administration to repeal them, which he has yet to do.

In the Reuters interview, Schröder had strong words for Washington regarding steel tariffs, and he urged the current administration to comply with the WTO ruling or face the consequences -- in short, a trade war.

“Germany assumes that the United States will implement the WTO decision,” he said. “That includes the dismantling of steel import tariffs as well as the unjustified subsidies for American exporters.” If not, said Schröder, the EU would proceed with proposed sanctions as early as December, but he hoped “that it wouldn’t come to that.”

Besides a potential trade war for Schröder worry about, the soaring euro -- it reached a record high this week near $1.20 -- threatens to put the breaks on Germany's export-led recovery. If the euro continues to remain at current levels or, even worse, further increase in value, the high cost of German products abroad could make them unattractive.