Germany threatens legal action if US hikes import tax

Donald Trump’s proposal to tax imports may lead to litigation at the World Trade Organization, according to German Economy Minister Brigitte Zypries.

The threat comes ahead of the first meeting of between Chancellor Angela Merkel and the US President on Friday.

Trump has warned the US would impose a 35 percent border tax on BMW vehicles, produced at a new plant in Mexico.

“I'm betting partly on reason and partly on the courts” to stop a damaging trade war, said Zypries in an interview with Deutschlandfunk public radio, Friday.

“The other option is that we file a suit against him at the WTO - there are procedures laid out there because in the WTO agreements it is clearly laid out that you're not allowed to take more than 2.5 percent taxes on imports of cars,” the minister said.

The US became Germany's biggest export market last year, selling €107 billion of goods while importing just €58 billion worth. Germany’s trade surplus has been a source of tension between Washington and Berlin.

“We know ourselves that that's a problem and we're working on it. Thankfully we just heard today that wage rises have been agreed again so that means domestic demand can increase again and we want to address tax incentives for research... so we're on a good path,” Zypries said.

Nearly 72,000 steel workers in northwestern Germany will get a 2.3 percent wage increase starting April and a rise of 1.7 percent from May 1, 2018, according to the employers’ association for the German steel industry Arbeitgeberverband Stahl.

“The Americans need our machines and our plants, and the other point is that we only have an export surplus in the machines and plants sector; in the service sector it's the other way around, due to big internet companies in the United States,” said Zypries.