February 14, 2018 / 2:49 PM / 8 months ago

Any U.S. tariffs could spark trade war, cut growth, Germany says

* DIHK says steel tariffs could trigger trade war

* Protectionism would hurt German exporters badly

* But no recession even in worst case scenario

* Strong domestic demand buffering external shocks

By Michael Nienaber

BERLIN, Feb 14 (Reuters) - The German chamber of commerce said on Wednesday that U.S. import tariffs on steel could trigger a trade war with major trading partners, which analysts say could cut growth in Europe's largest economy by up to 1 percentage point.

U.S. President Donald Trump said on Tuesday he was considering a range of options to address steel and aluminium imports that he said were unfairly hurting U.S. producers, including tariffs and quotas.

Trump's comments were the strongest signal in months that he will take at least some action to restrict imports of the two metals, delivering on his election pledge to put America first and protect U.S. workers from increased foreign competition.

But Martin Wansleben, managing director of Germany's DIHK Chambers of Industry and Commerce, said the introduction of tariffs would eventually burden U.S. consumers through higher prices and could trigger a worldwide trade war.

"With the proposal of new import tariffs, the U.S. government is undermining the positive investment incentives from its tax reform," Wansleben said.

The U.S. is Germany's most important export destination after the rest of the European Union, and exports still account for roughly 40 percent of German economic output.

But any import tariffs will eventually hit all U.S. companies that rely on intermediaries or capital goods from abroad, Wansleben said.

"As appealing as the tax relief from the recent U.S. tax reform may be, new import barriers raise prices and disrupt international production chains," Wansleben warned.

The growing threat of protectionist measures comes as the German economy enjoys a consumer-led upswing boosted by a rebound in exports and company investment.

Data released earlier on Wednesday showed German gross domestic product (GDP) expanded by a calendar-adjusted 2.5 percent in 2017.

The government expects the consumer-led upswing to continue this year, forecasting 2.4 percent growth. The DIHK Chambers of Industry and Commerce was more optimistic, projecting 2.7 percent growth in 2018.

"If Trump really decides to impose import tariffs, much depends on how the major trading partners of the United States will respond," Berenberg economist Florian Hense said.

"A protectionist race and an end of our liberal world trade order would be fatal, especially for Germany's export-dependent economy," Hense added.

In the worst-case scenario of a full-blown trade war, import tariffs and other barriers could chop as much as one percentage point off German economic output, he estimated.

"But we view this scenario as rather unlikely," Hense said. The more likely scenario would be that the U.S. imposes only some restrictions, limited to a few industrial sectors, he said.

This means that individual companies such as German steel company Salzgitter could suffer from import duties but not German exporters as a whole, Hense said.

"In this scenario, the damage would amount to 0.1 or 0.2 percentage points of overall economic growth," he estimated.

"The upswing in Germany will continue, especially as it is now largely driven by the domestic economy." (Reporting by Michael Nienaber; Additonal reporting by Gernot Heller; Editing by Hugh Lawson)

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