Last month I warned that the actions of Chirac and Schröder might result in American boycotts of Franco-German firms. According to the BBC, there isn’t any evidence of this yet, but German businesses are so concerned about this possibility that they are paying for full-page ads in American papers this weekend. These ads will stress the strength and depth of ties between the two nations over the past half century. Why are German businesses so concerned? The US is their second-largest international customer, buying approximately $45 billion dollars worth German products each year. According to Forbes, German exporters warned this week that Berlin's diplomatic rift with the United States over Iraq could mean a 10 percent drop in German exports to the United States and shave 0.33 percentage points off the country's economic growth this year.
The BBC is wrong about there not being any evidence yet. There is ample evidence that the policies are Chirac and Schröder have already resulted in Americans boycotting French wine, cheese, and bonds. The US government has reduced the involvement of German manufacturers in military projects, and has strongly hinted that the deployment of American troops to Germany will be greatly reduced in the future. Even Brussels – who tends to escape most of the negative publicity in the US given the louder rhetoric from Chirac and Schröder – is stating to see an impact. Forbes pointed out that in Antwerp, the country's second city and the world's largest diamond distribution centre which exports some $2 billion of polished gems a year to the United States, the outlook was less sparkling. “We are receiving signals pointing at delays or cancellations of orders," said a spokesman for the city's Diamond High Council.
I fear this is just the tip of the iceberg. So far, the impact has been relatively small. But it appears that Americans are starting to seriously organize both local and national boycotts. Germany financiers fear the impact on both the German stock market and their automotive industry. According to Reuters:
"There is a clear risk of that (U.S. investors selling German equities). We are already seeing that in the real economy with suppliers of goods or services being discriminated against because they are German," said Victor Moftakhar, fund manager at Deka Group.…analysts said worsening relations could lead to a U.S. boycott of German products or lead to the White House slapping higher import taxes on German exports, which would especially hurt the country's automakers.
"If the boycott against German products in the U.S. is further inflamed by politics, the car makers could suffer," said Michael Punzet, analyst at Landesbank Rheinland-Pfalz.
Market watchers said Berlin's opposition to war might cause further damage to the already battered economy and Germany's stock market.
"We are treading on very dangerous terrain, with Schroeder not even willing to give the U.S. a little finger. He could have offered humanitarian help," said Ulf Moritzen, fund manager at Nordinvest in Hamburg.
For my part, I can understand Chirac’s position. The French ignored many of the UN sanctions on Iraq and have close business ties to Saddam’s reign. They profited immensely from this. Along with Russia, the French have a lot to lose with a regime change. It is reasonable to say that keeping Saddam in power is in France’s best interests. This is not true of Germany. Schröder’s decisions are forming an unnecessary wedge between Germany and America and do not appear to be in the best interests of Germany. The German people deserve better. However, if Schröder continues on this path until he is up for reelection in 2006, I fear the damage will take years to repair.