Trump's trade war threats loom large over Germany's economic future

Germany risks being the biggest casualty if a Trump presidency ignites a trade war between the United States and Europe, as the nation’s once-admired industrial strength may transform into a significant vulnerability.

Former President Donald Trump has proposed comprehensive tariffs ranging from 10% to 20% on nearly all imports, along with tariffs of 60% or more on goods from China, measures he claims will enhance U.S. manufacturing, Caliber.Az reports citing Reuters.

According to an exclusive report by the German Economic Institute IW, if a Trump administration were to impose a 20% tariff on the EU, and the EU retaliated, eurozone GDP could plummet by 1.3% in 2027 and 2028, with Germany experiencing a decline of up to 1.5%.

The negative impact on EU GDP is projected to worsen from 2025 to 2028, while the U.S. would see stronger effects in the first two years, with a GDP reduction of 1.3% under a 10% tariff and 1.5% under a 20% tariff in 2025. Over time, the effects on U.S. GDP are expected to diminish as imports decrease more than exports, leading to an improved U.S. trade balance.

This year, Germany, as Europe’s largest economy, will be the only G7 country not to experience growth for two consecutive years, according to the latest forecast from the International Monetary Fund (IMF). A trade conflict with the U.S., its primary trading partner, would significantly hinder economic output.

This year, the U.S. has overtaken China as Germany’s largest trading partner, marking a significant shift after China held that position for eight consecutive years.

“Half of Germany’s growth consistently comes from exports, and considering the current global landscape, it’s clear this pillar is under threat,” German Economy Minister Robert Habeck stated earlier in October while presenting the government’s economic forecasts.

In 2023, German exports shrank by 0.3% due to weak global demand and geopolitical tensions, with the government forecasting a further 0.1% contraction this year.

A study by the Hans Boeckler Foundation macroeconomic institute suggests that 20% tariffs could reduce Germany's output by one percentage point in the first two years of implementation.

German automotive exports would be particularly hard hit, projected to decrease by 32%, while pharmaceutical exports could decline by 35%.

This situation represents a fresh challenge for German industry, a cornerstone of the nation’s economic model, which has been in a downturn for years without signs of recovery.

By Tamilla Hasanova