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Small and Medium Enterprises (SMEs) in Germany express apprehension over potential secondary impacts of US tariffs

German Businesses Worry Over Unintended Effects of U.S. Tariffs

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3 min read
Storage facility in Frankfurt am Main holds shipment container
Storage facility in Frankfurt am Main holds shipment container

US Tariffs: A Threat to German Small and Medium Enterprises (SMEs)

U.S. Tariffs Impact: Small and Medium-Sized German Enterprises Primarily Worry About Unintended Consequences - Small and Medium Enterprises (SMEs) in Germany express apprehension over potential secondary impacts of US tariffs

In the wake of the increased US import tariffs, the domestic business landscape has become more challenging for German SMEs, particularly those in the metal, automotive, and machinery sectors.

Consequences for German Companies

A study reveals the potential consequences for these companies, such as price increases of their products in the US or reduced demand for exports. This is due to the anticipated negative impact on their business partners' operations as a result of US tariffs[1][3]. Approximately two-thirds of companies in the metal, automotive, and machinery sectors expect indirect, negative effects[1].

Lack of Concern or Direct Consequences

While 29 percent of companies express no concern over US tariffs, they may face more adversity from potential EU counter-tariffs[1]. 29 percent anticipate direct consequences like increased procurement prices, while only 19 percent expect no negative effects[1].

But DZ Bank analyst Claus Niegsch believes the concern about higher costs may be premature, suggesting that goods from other nations, originally intended for the American market, could instead find their way to Europe and potentially lower European prices[1].

Methodology

To gather this data, DZ Bank surveyed 1,000 owners and managers of German SMEs between March 6 and March 26. At the time, the exact level of tariffs on goods from the EU was unknown, but a 25% tariff for the automotive sector and 25% tariffs on steel and aluminum were already on the table[1].

  • Germany
  • DZ Bank AG
  • USA
  • SMEs
  • EU
  • Frankfurt am Main
  • Metal
  • Machinery

Further Considerations

Let's face it, the potential consequences of US tariffs extend beyond direct financial implications for German SMEs. Here are some lesser-known but significant issues that these companies could encounter[1][3]:

  1. Reduced Global Export Demand: The uncertainty brought about by increased tariffs and a volatile global trade environment could result in a $480 billion drop in global exports by 2025, affecting the sales volumes and revenue streams of German SMEs.
  2. US Market Access: Elevated tariffs may make it more challenging for German SMEs to compete in the US market due to increased product costs for American buyers.
  3. Supply Chain Disruptions: Countermeasures and retaliatory tariffs by the EU and other nations could potentially harm supply chains and drive up the costs for imported raw materials and components.
  4. Administrative Burdens: New rules on VAT and customs compliance, as well as the need for stricter due diligence on value chains, can divert resources from innovation and business development.
  5. Market Volatility and Economic Uncertainty: With global economic growth projected to slow and mild recession predicted in the US, lower demand not only in the US but also in other key export markets could be possible.
  6. Sustainability Requirements: With tighter regulatory frameworks on sustainability, German SMEs may be forced to invest more in compliance and sustainability reporting, as resources are stretched amid trade-related cost pressures.

In summary, German SMEs in sectors like metal, automotive, and machinery anticipate facing reduced export opportunities, supply chain disruptions, increased administrative burdens, and market volatility due to escalating US tariffs and the broader trade war environment. This could erode their competitive edge and strain their operational resilience [1][3].

  1. The US tariffs on imports pose a significant threat to the financial well-being of Germany's small and medium enterprises (SMEs), particularly those in the metal, automotive, and machinery sectors, due to potential price increases and reduced demand for exports.
  2. A survey by DZ Bank reveals that two-thirds of companies in the sectors mentioned anticipate indirect, negative effects, while 29 percent of these companies express no concern over US tariffs, potentially facing more adversity from potential EU counter-tariffs.
  3. While the concern about higher costs may be premature, according to DZ Bank analyst Claus Niegsch, there is a possibility that goods from other nations, originally intended for the American market, could find their way to Europe and potentially lower European prices.
  4. Beyond direct financial implications, German SMEs could encounter reduced global export demand, challenges in accessing the US market, supply chain disruptions, increased administrative burdens, market volatility, and economic uncertainty.
  5. With tighter regulatory frameworks on sustainability, German SMEs may be forced to invest more in compliance and sustainability reporting, further straining their resources amid trade-related cost pressures.

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