Among Europe's Elite, Trump Trade Talk Wins Grudging Support

(Bloomberg) -- No one likes trade wars but U.S. President Donald Trump is starting to win some grudging support among European and global business elites as he moves to put China’s trade practices in the spotlight.

Investors and economists attending the annual Ambrosetti Spring workshop along the shores of Italy’s Lake Como voiced concern about protectionist saber-rattling between the U.S. and China. Yet several admitted that some of Trump’s complaints about unfair competition from China ring true.

“Import tariffs on cars are 2.5 percent in the U.S., 10 percent in Europe, 25 percent in China. So who’s the true manipulator here?” Davide Serra, chief executive officer of Algebris Investments, said in an interview with Bloomberg Television. “If China wants to be the adult in the room, it needs to behave like an adult.”

China vowed Friday to fight Trump’s tariffs “to the end” after the U.S. President asked his administration to consider tariffs on an additional $100 billion of Chinese goods. That raised stress levels among the pillared corridors of Villa D’Este in Cernobbio, where the conference gathers bankers, economists, and investors.

First to sound the alarm was European Central Bank Executive Board Member Benoit Coeure. He outlined a scenario where the U.S. and its trading partners impose tit-for-tat tariffs of 10 percent on goods, which would have “significant adverse effects” on the global economy but hurt America most by cutting 2 and a half percentage points from growth in the first year alone.

Read More: Bloomberg Economics on the costs of trade wars

“China’s share in world output is gigantic and one has to be concerned that any uncertainty in that large country can be exported to the rest of the world,” said JPMorgan Chase International Chairman Jacob Frenkel in an interview. “The way to address it is to engage rather than confront.”

As the trade confrontation between the U.S. and China threatens to escalate, Europe may be caught in the middle of the tug-of-war.

“Europe should be the de-escalating power,” Heiner Flassbeck, honorary professor at Hamburg University and a former German government official, said in an interview. “Trump at least has one good point, which is that there are countries out there -- including my own country, Germany -- that have huge surpluses on trade, and this is not a normal part of open trade.”

EU Commission Vice-President Valdis Dombrovskis believes that trade disputes should always be handled at a multilateral level and not bilaterally. “If there are trade disputes, and there will always be trade disputes, solve them within the WTO.”

Negotiating Strategy

For all the concerns about the next steps that the U.S. and China may take, in Cernobbio many hope that Trump’s fiery words may just be a negotiating strategy.

“We need to understand the difference between noise and signal,” Andrew Sheng, China Banking Regulatory Commission chief adviser, said in an interview. “I don’t think China wants to hurt the U.S. I don’t think anybody wants to hurt anybody else. Trump is a very good negotiator and I think everybody feels that if he wants to get a better deal, there will be a lot of negotiating stance.”

The latest threat to global trade has already pushed U.S. stocks down and raised Treasury yields, bookending a week that saw equities tumble.

“Discipline is going to eventually come from the markets,” said Nouriel Roubini, CEO of Roubini Macro Associates. “We’ve already seen how this rise of trade tension has led to a significant market correction.”

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