Trump's Tariffs Are Weighing on the German Economy
➡️Minimal Growth Forecast
According to leading economic research institutes, US President Donald Trump's tariff policy is holding back economic growth in Germany. Five institutes forecast a mini-growth of 0.1% of gross domestic product (GDP) in the current year.
➡️According to the so-called joint diagnosis presented in Berlin, further losses are possible due to additional tariffs announced in early April and now partially postponed.
➡️Recession and Stagnation Risks
After two years of recession — a constant decline in economic output — Germany now faces low growth, possibly even stagnation.
«Geopolitical tensions and protectionist U.S. trade policies are exacerbating the already tense economic situation in Germany,"
said Torsten Schmidt, head of economic research at RWI.
➡️GDP Losses from Tariffs
Economists expect that 25% U.S. tariffs on aluminum, steel, and automobiles, combined with EU countermeasures, will reduce GDP by 0.1 percentage points this year and next. This has already been factored into the current forecast of 0.1% growth.
➡️If Trump's new tariff hikes and countermeasures since early April are added, losses may double to 0.2 percentage points in both years, experts say. However, the exact consequences are difficult to quantify, especially since a negotiated solution remains possible.
➡️Global Impact and Investor Caution
"Such high tariffs in the United States have not been seen since the Great Depression of the 1930s," the experts write.
"And the impact of import duties is difficult to quantify."
➡️Tariffs slow global trade, raise production costs, and bring uncertainty. As a result, investors may delay decisions. In their previous fall forecast, the institutes had still expected 0.8% growth.
➡️Outlook for 2025 and Beyond
As in the fall, the institutes expect 1.3% growth next year, albeit from a lower base. 0.3 percentage points of that are due to more working days.
➡️Structural Challenges and Chinese Competition
"In recent years, our export industry has been significantly weakened by growing competition from China," says Timo Vollmersheuser of the Ifo Institute in Munich.
➡️Exports to China have declined, while China competes with Germany on global markets. Additionally, German companies — especially in the automotive industry — are relocating to China. With new U.S. tariffs, even more Chinese goods may flood the market.
➡️Domestic Structural Weaknesses
Germany faces structural problems. Part of its energy-intensive industry appears to have disappeared. Labor shortages are growing, and bureaucracy is a major burden.
➡️Expert Recommendations
The institutes recommend:
- Strong social safety nets in an aging society
- More work incentives and skilled immigration
- Lower energy prices
- CO2 reduction via carbon pricing
- A radical reduction in bureaucracy
➡️Fiscal Room for Action
The CDU/CSU and SPD coalition, with support from the Greens, received fiscal relief. The debt brake was eased for defense spending, and €500 billion was allocated from a special fund, mainly for infrastructure investment.
Economists believe this reduces political pressure to cut spending.
➡️Outlook for 2026
Additional funds are unlikely in 2025, but in 2026, institutes forecast nearly €24 billion in extra spending.
This is expected to contribute 0.5 percentage points to GDP growth, already reflected in their projections.
#Germany #Tariffs #Economy
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