Germany's economy faces a critical turning point due to Trump's imposed tariffs. The latter's measures aren't proving beneficial.
Struggle looms large for Germany's economy.
Worries about economic growth abound, with some predicting a victory for the far-right AfD if the coalition fails to ignite growth. The German economy, the world's third-largest, has barely budged since the pandemic. Consecutive annual contractions in 2023 and last year are a grim reminder of its staggering state, according to the International Monetary Fund's forecasts.
Once a thriving export-oriented powerhouse, Germany's fortunes have waned. From 2005 to 2019, its economy flourished, propelled by cheap Russian gas, ravenous Chinese consumer demand, and a seamless global trading environment. However, the landscape has drastically altered since then.
Trump's resurrection as US President poses the latest challenge for Germany's export-dependent industries. Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, warns the retreat of free trade is detrimental for Germany.
Economic reformation is crucial, not only for the electorate's desired growth but also for the prosperity of future generations, particularly the swelling ranks of pensioners. "An unreformed German economy is a stagnating, aging, sclerotic... German economy," Kirkegaard asserts.
Misfiring growth engines
Germany's export sector has long fueled its growth. In 2023, exports accounted for over 43% of the total gross domestic product, the largest share among major economies – as per the World Bank.
Motor vehicles, machinery, and chemical products were Germany's main exports last year, according to its statistics office. Relying on foreign demand reaped substantial benefits when China's economy was booming. However, its subsequent slowdown has lessened economic activity.
China's auto industry has also surged, capturing significant market share from international rivals. German automakers' reluctance to invest in electric vehicles (EVs) and prioritize conventional cars has contributed to this shift. Chinese EV manufacturers, combined with Tesla's dominance, have proven more adept at producing millions of EVs.
Meanwhile, Germany's energy-intensive industries are hit hard by rocketing gas prices. Many industries have scaled back production or closed due to the energy crisis. "We're witnessing deindustrialization," laments Lars Kroemer, chief economist at Gesamtmetall.
High taxes and burdensome regulations have also weighed heavily on Germany's industries. Infrastructure investment, including in digital services, has lagged behind. The digital divide is a looming concern in Germany, where bureaucratic conventions persist.
Tariff tumult
Trump's tariff threats loom large over Germany's export-dependent industries, with the US making good on those promises. The imposition of a 25% duty on all steel and aluminum imports in March 2025 is the most recent development. The new tariffs could hinder German export competitiveness, particularly if foreign manufacturers pass the costs along to their US customers.
Trump's plans for reciprocal tariffs on imported goods and a 25% duty on automobiles, semiconductor chips, and pharmaceuticals have further shaken business confidence. More than 1.2 million German jobs depend, directly or indirectly, on exports to the US, representing 2.6% of all jobs in the country.
While Trump's tariffs could harm Germany, the geopolitical backlash could also impact other nations. Mexico, Canada, and China may redirect exports destined for the US to new markets, potentially competing with German goods there. The global economy is highly interconnected, and a tariff imposed anywhere has ripple effects even globally.
Striking a balance between resisting protectionism and fostering progress in the face of adversity is crucial for Germany to navigate this challenging period. The country's entire business model may need an overhaul, as some argue, to secure its future as a major global economy.
The German economy, heavily reliant on exports, agrees that tariffs imposed by President Trump in 2025 could hinder its competitiveness, potentially affecting over 1.2 million jobs. The swelling energy costs due to rocketing gas prices have already resulted in deindustrialization, with many energy-intensive firms scaling back production or closing entirely. In light of these economic challenges, many firms in Germany, including German automakers, are focusing more on electric vehicles to stay competitive in the global economy.
