Donald Trump’s upcoming presidency is raising alarms about its potential effects on the global economy, particularly Germany’s. His ‘America First’ policies, including reduced corporate taxes funded by increased tariffs, threaten to disrupt international trade dynamics. Concerns focus on the USA’s trade deficit with Germany and other nations. While experts predict manageable economic impacts for Germany, they caution that significant job losses and a shift in investment to the USA could reshape the economic landscape.
Trump’s Return and Its Impact on the Global Economy
Donald Trump is set to resume his role as President of the USA next Monday, and his economic policy, centered around the slogan ‘America First,’ raises concerns for the German economy.
Even before taking office, Trump has stirred controversy with his ambitious economic agenda. He plans to reduce energy prices and corporate taxes while funding these tax cuts through increased tariffs. These tariffs aim to shield American companies from foreign competition, which could have significant repercussions for international trade.
Potential Consequences for Germany
As Trump’s inauguration approaches, business groups are already voicing concerns about the potential challenges ahead. The primary driver of this anxiety is the substantial trade deficit the USA faces with various countries, including Germany, its largest trading partner. Historically, Germany has enjoyed a considerable trade advantage over the USA, a trend that has persisted since reunification.
Following a downturn due to the COVID-19 pandemic, Germany’s trade surplus has rebounded sharply, reaching record levels. Other significant trading partners of the USA include Mexico, Canada, and China, all of which contribute to a trade imbalance where the USA imports far more than it exports. Trump seeks to rectify this situation, placing Germany, along with China, Canada, and Mexico, at the forefront of his tariff strategy.
Trump has expressed a fondness for tariffs, describing them as a beautiful aspect of trade policy. He has shown flexibility regarding the rates, suggesting tariffs as high as 60 percent on Chinese imports, with lower rates for other nations. Historically, tariffs have existed in various forms, but never at such elevated levels. Currently, the average tariff in global trade stands at just 2.5 percent, according to the Kiel Institute for the World Economy.
The ultimate burden of these tariffs remains uncertain. Foreign suppliers might either absorb the costs, maintaining consumer prices, or pass them onto American consumers, leading to increased prices for various goods and potentially igniting inflation in the USA. This scenario could make everyday items significantly more expensive for American households by 2025.
Concerns about a looming trade war are palpable, but there remains a glimmer of hope. During his first term, Trump’s tariffs primarily inflated prices, a pattern that could repeat itself, adversely impacting American consumers while harming the US economy in the long term.
Several German economic research institutions, including the IfW and the Institute of the German Economy in Cologne, have analyzed the potential impact of these tariffs on Germany’s growth. They conclude that while Germany may experience some economic slowdown, the effects will be manageable. In contrast, both China and the USA could face more severe repercussions.
Despite the risks, experts like Julian Hinz from the IfW caution against overestimating the impact of reduced exports. Most German production remains domestic, with a significant portion of exports directed toward Europe before reaching the USA.
The tariffs proposed by Trump could jeopardize thousands of jobs in Germany. Although Germany’s reliance on the US market is limited, the timing of this potential trade dispute is particularly challenging. The German economy, which has thrived on exports of automobiles, machinery, and chemical products, now faces uncertainty. Economist Markus Brunnermeier from Princeton University highlights that the attractive prospect of relocating production to the USA, due to lower energy costs and taxes, may entice many German companies to invest stateside instead of in Germany, altering the global economic landscape.
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This discussion was initially reported by Deutschlandfunk on January 17, 2025, at 6:40 PM.