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Iraq row has no impact on US-German trade

FRANKFURT Unprecedented tension between Germany and the United States over Iraq is having little effect on business, but German industry is beginning to worry about the long-term impact on exports.

'The facts are clear: the United States is Germany's biggest trade partner outside the European Union. Around 10 per cent of our exports head toward the United States,' the German BDI federation of industry says.

The United States is also the major foreign investor in Germany with 1,800 American subsidiaries employing 800,000 people and an estimated direct annual investment of around 40 billion euros ($42.8 billion).

According to a BDI spokesman, German industry has not felt 'any direct negative consequence' of the diplomatic wrangling between Berlin and Washington about whether military action should be taken against Baghdad.

Indeed business is booming for many.

The German auto-sector, for instance, is seeing an improvement in performance in the United States. DaimlerChrysler for one saw sales of Mercedes cars climb by three per cent in January from the figure for the same period last year.

As for BMW, which claimed in January to have recorded 'the best sales ever seen for this month in the United States,' a spokesman says the company 'was feeling no effects for the moment.'

'The American people are themselves divided over the Iraq question, so why should they buy fewer German cars?' says Fred Erwin, the president of the US chamber of commerce in Germany.

'Politics is politics and business is business,' said a spokesman for German electronics giant Siemens, which had sales of around 20 billion euros there in 2001 and has 500 factories employing around 85,000 people.

But behind the veil of 'business as usual' lurk fears of problems to come.

'No one can succeed in the long term to do business with major clients while being in a dispute with them,' says Anton Boerner from Germany's BGA wholesale and foreign trade association.

With its attitude, the 'German government won't stop things from happening (in Iraq), but we on the other hand have everything to lose,' Boerner says.

According to his estimates, German industrial sales in the United States will probably drop by 10 per cent because of political tensions between the two countries.

That will hurt growth in the euro zone's largest but worst-performing economy and cut gross domestic product by about 0.3 per cent, Boerner reckons.

This is a bleak scenario for a country struggling to avoid recession and only keeping its head above water through exports which thrive thanks to the reputation for quality that products stamped 'Made in Germany' have.