Trump's trade policy darkens mood among German companies in July

By Michelle Martin

BERLIN (Reuters) - German business confidence dipped in July, a survey showed on Wednesday, suggesting a slew of risks, including the threat of U.S. tariffs on cars and car parts, is starting to unsettle company executives in Europe's largest economy.

The Munich-based Ifo economic institute said its business climate index fell to 101.7 from 101.8 in June, but it did not register as big a drop as forecast. Economists polled by Reuters had expected a reading of 101.5.

U.S. President Donald Trump's trade policy, along with a recent government crisis in Germany that was caused by a dispute over migration and has since been resolved, increased uncertainty, Ifo economist Klaus Wohlrabe told Reuters.

 

Companies felt slightly more upbeat about their current situation, but their expectations for the coming six months worsened, the survey showed.

"The current debate about tariffs probably made itself felt there - the trade disputes are making life in the corporate sector harder," said Thomas Gitzel, chief economist at VP Bank.

Citing national security grounds, Washington imposed tariffs on steel and aluminium imports from the European Union, Canada and Mexico on June 1. Now Trump is threatening to extend them to EU cars and car parts - a worry for Germany, where the car industry accounts for some 800,000 jobs.

Export expectations in the auto industry have fallen significantly, Wohlrabe said.

At the weekend, Economy Minister Peter Altmaier said it was difficult to estimate the impact of any U.S. car tariffs on the German economy. But tariffs on aluminium and steel were worth just over 6 billion euros ($7.02 billion), he said, and car tariffs would probably be about 10 times that.

European Commission President Jean-Claude Juncker will discuss trade with Trump at a meeting in Washington on Wednesday.

The weaker Ifo reading comes after a survey published earlier this month showed the mood among German investors slumped to its lowest since August 2012 amid concern about escalating trade tensions with the United States.

Despite the risks that the threat of a global trade war and Brexit pose, the government expects growth to accelerate slightly in the second quarter from 0.3 percent in the first three months of the year.

($1 = 0.8552 euros)

(Additional reporting by Joern Poltz in Munich, writing by Michelle Martin, editing by Paul Carrel, Larry King)