Oh dear, this doesn’t bode well for those who are concerned about U.S. imposed 20% auto tariffs on EU, mostly German, automobiles. [NOTE: Pay attention to the timing here as it relates to Nord Stream 2] Germany’s chancellor Angela Merkel has announced she will no longer uphold her prior agreement for NATO military spending.

At the 2014 NATO meeting in Wales, all NATO members agreed they would immediately begin a process to increase their military spending to two percent of GDP. However, over time, and in direct contravention to the purpose of the effort, Germany (Merkel) began secretly working behind the scenes with Russia (Putin) on the Nord Stream II gas pipeline.

The Nord Stream 2 pipeline delivers natural gas from Russia to Germany. That pipeline is expected to go on-line this November, 2019. Today, Angela Merkel announces she will no longer uphold Germany’s financial commitments to NATO. These two issues are directly related. It now looks like Merkel made a back-door agreement with Russia on NATO.

(Via Daily Mail) Germany’s military spending is set to fall below its NATO targets, in the latest flashpoint in Berlin’s long-running row with Washington. The latest German budget plans, revealed on Monday, will see defence spending drop well below the two per cent of GDP expected from NATO members. U.S. ambassador Richard Grenell said the cuts were a ‘worrisome signal’, while President Donald Trump has repeatedly accused Germany of freeloading on U.S. military might.

But German Chancellor Angela Merkel rejected the U.S. criticism, saying Germany will not cut foreign aid to raise military spending. Merkel said today that ‘we will continue our effort’ in terms of raising defence spending, ‘but not at the expense of development aid’. ‘We have always said that we’re headed in the direction of two percent, and that by 2024 we will reach 1.5 per cent,’ she said. ‘I can understand that this is not enough for the American President, it’s not enough for many European allies.’ (read more)

I have no insider information for what I anticipate will be the response; however, my suspicion is that President Trump will respond to Merkel’s duplicity with an announcement of possible 20% to 25% tariffs on EU automobiles, directly targeting the German economy, if she doesn’t change her mind.

German auto exports (BMW, Audi, Mercedes, VW) are the vast majority of U.S. ‘car’ imports from the EU. There is already a 25% import tariff on German SUV’s and trucks; which is why BMW, Mercedes and VW make their SUV’s and large vehicles in the U.S.

Germany’s finance ministry had yesterday presented its budget planning for coming years, which signalled a drop. It said defence spending would first rise to 1.37 percent of gross domestic product in 2020 but then likely fall back to 1.25 percent by 2023. (read more)

Angela Merkel is betting her entire economy on the principle that President Donald Trump cannot win the 2020 election.