Meeting with US Treasury Secretary
With the elephant in the room, Habeck has to be smart in Washington
By Clara Pfeffer, Washington
March 8, 2024, 12:21 p.m
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For the Americans, China is now more of an enemy and rival than a partner. They would like to see Germany also move further away from Beijing. But how much distance from China can the German economy afford? Not an easy starting point for Economics Minister Habeck in Washington.
Robert Habeck has to wait – United States Treasury Secretary Janet Yellen arrives a few minutes late. But the German Vice Chancellor is in a particularly good mood these days, posing for the cameras and joking. The welcome in the golden halls of the Washington Treasury Department was also warm. It is not customary for the Americans to film the start of such a meeting, which is probably why they seem insecure for a moment. There is no longer any sign of this when the conversation opens in the conference room.
The 77-year-old begins with clear words about what she sees as the most pressing issue: aid to Ukraine. It must be ensured that Ukraine gets enough to defend itself against Russia. And that the sanctions against Russia will not be circumvented. What’s more: The Americans are pushing to use Russian assets that have been frozen since 2022 to provide financial support to Ukraine. It’s about 262 billion euros. At the G20 finance ministers’ meeting, Janet Yellen had already called for these funds to be used directly for Ukraine. This is going too far for the Europeans. There is no legal basis for this. However, the EU has just created the basis for using the profits from the assets, i.e. the interest, for Ukraine.
A middle path that Habeck also supports. Europe is affected very differently than the USA, especially with regard to the stability of the currency and the legal area of Europe. Because the vast majority of assets are euros, not dollars. If current law were broken, it could also generally weaken trust in the euro.
The big elephant in the room is China
The Vice Chancellor also has little to offer the Finance Minister when it comes to sanctions. He talks about strengthening customs duties. But this would require the appropriate staff. Germany also wants to talk more intensively with the nations that benefit from the current sanctions policy. It is a question of honor to implement the sanctions imposed – but Habeck cannot really answer how exactly this should happen. Here too, the Americans would like to see a much more energetic demeanor.
Just like with China. The big elephant in the room on the Economics Minister’s third trip to the USA. The relationship with China is also what concerns local German business representatives and companies the most. A good year and a half ago, Democratic President Joe Biden signed the Inflation Reduction Act – a subsidy package worth hundreds of billions of dollars for climate-friendly companies. With the important condition: Only those who produce in the USA benefit.
The Americans actually wanted to defend themselves against China. But since then, many German companies have also preferred to relocate their production to the other side of the Atlantic. “It was sometimes unfriendly,” admits Habeck. But they could always have talked about it and now it’s about defining common rules for certain areas, critical raw materials, batteries, the ramp-up of hydrogen. However, little has happened in the past year and a half.
So far there have been hardly any exceptions for the closest allies. The USA is taking a protectionist course. It seems to be the only thing that Democrats and Republicans even agree on at the moment. At least there are some forums and discussion groups – the so-called EU-US Trade and Technology Council (TTC) is intended to coordinate joint action on important trade, economic and technology issues. For Habeck, it is now a matter of establishing the TTC as a permanent and broadly systematically working body beyond the elections in the EU and the USA. Because under President Donald Trump, this could quickly be over.
But what can Germany offer the USA in return? “We benefit from each other when our economies are strong,” argues Habeck. We are also dependent on strengthening both economic areas compared to other countries. This is also clear to the Americans. And yet they would like one thing above all: Germany to clearly distance itself from China. The USA itself, for example, wants to cut China off from high technologies such as important semiconductors. However, China remains an economically indispensable partner for Germany – especially in a phase in which the economy is already weakening.
Relations are still good
Habeck tries it like this: “I want to work to ensure that China remains part of a win-win situation. It must always be riskier for countries to turn against other countries, to turn against other economic areas, than to cooperate with them.” What he means is that China’s hurdle to turning militarily against the West and its allies is greater as long as there is a lot to lose economically on the other side. If there are no longer any economic relationships, there is less to lose. Nevertheless, one should not be naive after the experience with Russia. That is why the Ministry of Economic Affairs has significantly changed its attitude towards China. “We have developed a China strategy,” said Habeck. All of this is also seen in the USA and means that overall trust is better than ever.
However, this also only applies under President Joe Biden. Donald Trump has announced several times that he does not want to make any exceptions for China. So what if the US forces Europe to choose? “If you force me to choose, then I would say the relationship with the USA is dominant, also militarily and economically,” said Habeck. But you shouldn’t interpret it one-sidedly. Everyone has an interest in China being part of the solution. Habeck wants to appear confident here in the USA. Recall that German companies have created around one million jobs in the USA. This makes them the third largest foreign employer in the United States.
At the end of her statement, Janet Yellen also said that relations between the USA and Germany have probably never been as good and trusting as they are today. The Vice Chancellor would like to take advantage of this moment – because the tide could turn again in just eight months.