Germany’s Economic Woes: A Perfect Storm Brewing
The German economy, already struggling to gain momentum, may be dealt another significant blow with the re-election of Donald Trump as U.S. President. Despite narrowly avoiding a technical recession in the third quarter, Germany’s economic growth remains sluggish, with key indicators painting a lackluster picture.
A Heavy Reliance on Exports
Germany’s economy is heavily reliant on exports, with the U.S. being its second-largest trading partner. In 2023, around 9.9% of German exports went to the U.S. in terms of value. However, Trump’s protectionist policies, including proposed tariffs and restrictions on imports, could severely impact German exporters.
Tariffs and Trade Tensions
Trump’s election victory has sparked concerns that he may follow through on his threat to impose blanket tariffs of 10% to 20% on almost all imports. This could result in significant economic damage to Germany, with estimates suggesting that German exports to the U.S. could shed roughly 15% as a result.
* Autos and Chemicals: Most Exposed Sectors*
According to Morningstar DBRS, autos and chemicals are two of the sectors most exposed to potential Trump tariffs. Both industries have historically been key pillars of the German economy.
EU Must Take Action
Experts warn that Germany and the European Union must take their own measures to strengthen their position in the face of U.S. distancing from global cooperation. This includes deeper integration of the EU services market and credible retaliatory measures against the U.S.
Government Turmoil
The U.S. election comes at a time of turmoil within Germany’s own government. The ruling coalition has broken apart, and Chancellor Olaf Scholz has sacked the Finance Minister. Despite this, senior German political figures have congratulated Trump on his election, with Scholz pledging that Germany will remain a “reliable” partner.
Urgent Economic and Security Policy Homework
As the situation unfolds, Germany and the EU must prioritize their economic and security policy homework more urgently than ever. This includes engaging in diplomatic efforts to convince the U.S. administration that a trade conflict is not in the best interest of either party.
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