Germany was banking on a fresh start with a new government to jumpstart its sluggish economy. However, President Trump’s introduction of extensive tariffs is raising concerns that the country might not reach its modest growth goal of 0.3% this year.
Olaf Scholz, Germany’s chancellor, expressed his concerns on Thursday, describing the tariffs as “an attack on the global trade rules that have brought prosperity worldwide.” He emphasized the importance of European Union solidarity in safeguarding their collective interests.
Scholz, who continues to lead in a caretaker capacity after losing the February election, finds himself hamstrung while waiting for a new government to take office in the coming weeks. This uncertainty is ill-timed for Germany—the EU’s leading economy—as it confronts the challenges posed by the tariffs without strong leadership.
Germany is particularly vulnerable, given the extensive trade link with the United States. Just last year, the nation exported goods valued at 161.4 billion euros (about $178.4 billion) to the U.S., according to its federal statistics office.
In an attempt to stimulate the economy, which has contracted over the past two years, Germany’s Parliament decided last month to relax debt restrictions. This decision greenlit the creation of a substantial €500 billion ($550 billion) infrastructure fund, sparking cautious optimism among markets and businesses.
Yet, economists at Morgan Stanley warned of the risks tariffs pose to this budding recovery and potential defense spending uptick. “We anticipate Germany could feel nearly twice the impact compared to the broader euro area,” they noted, suggesting tariffs might nullify the potential gains from the economic stimulus.
Still, Germany clings to the hope of negotiating a deal with Washington. Jörg Kukies, Germany’s finance minister, met with U.S. officials last week. He acknowledged that while negotiation is crucial, it won’t suffice by itself. “We need a decisive response,” Kukies told the BBC, cautioning against passive inaction and advocating for a “measured and constructive” EU move.
The situation grew more complicated as Trump slapped a 20% tariff on EU goods and a 25% duty on cars and auto parts Wednesday. The unpredictable nature of these policies, said Monika Schnitzer, an economics professor and adviser to the German government, only adds to the strain. “Companies can adapt to tariffs,” she noted, “but not to constantly shifting threats, which is highly damaging.”
German automakers are feeling the heat. The 25% tariffs, effective as of Thursday, present a significant challenge for the country’s largest industry. Analysts at Bernstein have forecasted losses of $11 billion for major players like Volkswagen, BMW, and Mercedes-Benz.
Even with U.S. assembly plants, German car manufacturers find themselves hard-hit, as vehicle components are sourced globally. Anticipating price hikes, sales for brands like BMW and Volkswagen surged in recent weeks, with American consumers rushing to beat the tariff-induced increases.
Describing the tariffs as a “frontal attack on world trade,” Dirk Jandura, the president of Germany’s BGA trade association, urged the EU to quickly counteract. He also implored Germany’s export-reliant sectors to reassess and bolster their competitiveness. “This is a wake-up call,” he stated.
German officials caution, however, that the trade dispute could backfire on Americans, inflicting more pain than the tariffs’ intended targets. “For U.S. consumers, this won’t be Liberation Day, but rather Inflation Day,” quipped Robert Habeck, Germany’s economy minister, during a recent press briefing.
[Reporting from Berlin by Steven Erlanger.]
