Trump’s Tariffs Pose a New Threat for Germany’s Stagnant Economy #NewsGerman

Germany had hoped that a new government would revive its stagnant economy, but President Trump’s sweeping new tariffs are stoking worries that the country will fall short of its 0.3 percent growth expectations this year.

Calling the tariffs “an attack on the rules of global trade which created prosperity around the world,” Olaf Scholz, Germany’s chancellor, stressed on Thursday that his country was counting on cooperation among the European Union members to defend their interests.

The move risks raising prices for U.S. consumers on well-known brands whose products are still fully “made in Germany,” from Porsche and Jägermeister to Fischer Amps and Harry’s razors.

Mr. Scholz, whose government lost an election in February but is still operating in a caretaker capacity, is limited in his ability to act as the country awaits the formation of a new government, expected in the coming weeks. The timing couldn’t be worse for Germany, Europe’s largest economy, to respond to the tariffs without clear leadership.

Germany could be the hardest hit of all 27 members of the bloc, given the large amount of trade that Germany does with the United States. Last year, Germany exported goods worth 161.4 billion euros, or $178.4 billion, to the United States, according to the country’s federal statistics office.

Last month, Germany’s Parliament agreed to loosen the country’s restrictions on debt in an effort to juice the economy, which contracted for the past two years. The move allowed lawmakers to create a new infrastructure fund worth €500 billion (almost $550 billion), which restored some optimism to markets and businesses.

But economists at Morgan Stanley warned that the impact of the tariffs could threaten prospective growth sparked by the package and the possibility of increased spending on defense.

“We think the impacts on Germany are likely to be almost double those we estimate for the euro area,” they wrote in a research note, adding that tariffs could ”potentially offset” the growth prospects from the stimulus package.

The country remained hopeful that Europe would be able to reach a deal with Washington, said Jörg Kukies, Germany’s finance minister, who met with the U.S. Treasury secretary, Scott Bessent, and U.S. trade representatives in Washington last week. But he added that negotiations alone would not be enough.

“We do need a strong reaction,” Mr. Kukies told the BBC. “It would be naïve to think that if we just sit there and let this happen, things will get better.” He said that he believed Washington was expecting the European Union to respond, but called for it to be in “a measured and constructive way.”

Mr. Trump imposed a 20 percent tariff on European Union goods on Wednesday, and a 25 percent levy on cars and automotive parts. But the uncertainty created by Mr. Trump’s policies, which can be announced or rescinded on a moment’s notice with little explanation, made the situation even worse, said Monika Schnitzer, a professor of economics at the Ludwig-Maximilians University of Munich who is an adviser to the German government.

“Companies can adjust to tariffs, but not to threats that change by the hour,” she said. “That damages the economy.”

German carmakers were already bracing for the 25 percent tariffs that Mr. Trump announced last week and took effect on Thursday. Automaking is Germany’s largest industry, and the United States is its most important export destination.

But other industries, including machinery, send roughly a quarter of their exports to the United States. Companies making optical and electronic equipment also sell heavily to U.S. customers.

Analysts at Bernstein, a financial research firm, have predicted that the new measures would cost Volkswagen, BMW and Mercedes-Benz, the country’s three leading automakers, $11 billion overall.

The German auto companies have assembly plants in the United States, but they will not be immune from the tariffs because most vehicles are assembled with parts that come from a patchwork of countries. In recent weeks, sales for BMW and Volkswagen have jumped in the United States, as consumers scrambled to get ahead of expected price increases caused by Mr. Trump’s new tariffs.

Calling the sweeping tariffs “a frontal attack on world trade,” Dirk Jandura, president of the German trade association BGA, urged the European Union to swiftly enact counter-tariffs in an effort to end the trade dispute.

Mr. Jandura also urged Germany’s export-dependent industries to rethink their business model. “This is also a wake-up call for us: We have to become more competitive ourselves,” Mr. Jandura said. But hundreds of German brands, such as Haribo, Claas machinery and Bayer, could suffer less of a blow, because they set up factories in the United States years ago to serve customers there.

“These companies have done that even without tariffs,” said Volker Treier, head of the German Chamber of Commerce and Industry.

But other companies that have shifted production to Asia in recent years, such as Adidas and Hugo Boss, could wind up being hit even harder than their counterparts still producing in Europe, because the United States raised tariffs even higher on many countries in Asia.

“The much higher U.S. levies of 50 percent or more on Asian imports are a genuine surprise and imply a sharper global trade shock than we and most observers had expected,” Robin Winkler, the chief economist with Deutsche Bank wrote in a research note on Thursday. ”Indirectly, this is a negative shock for Germany, too.”

Some German officials warned that the trade war would ultimately hurt Americans more than the targets of the tariffs. “For consumers in the U.S., the day will not be Liberation Day, but Inflation Day,” Robert Habeck, Germany’s economy minister, told reporters.

Steven Erlanger contributed reporting from Berlin.