A Tough Road Ahead: US Tariffs and Germany's Export Woes
Customs dispute impedes export recovery pace
The escalating trade spat with the US has taken a toll on Germany's economic progress, plunging the nation into a rocky start for the second quarter. Despite some optimistic whispers of a turnaround, the future remains murky - even the Bundesbank has revised its economic forecast, predicting a potential three-year streak of stagnancy for Europe's largest economy.
In April, exporters, particularly those dealing with the US, faced a significant slowdown, as preliminary figures from the Federal Statistical Office reveal. Despite a spike in exports to the US following US President Donald Trump’s XXL tariff package announcement, the figures plummeted to their lowest level since October 2024, amounting to 13 billion euros.
A Call for Dialogue: Exporters seek a solution
"The ghost of US trade policy has finally reached us, and exports to the US are crumbling," Dirk Jandura, president of the Federal Association of Wholesale, Foreign Trade, and Services (BGA), summed up. "The EU must act swiftly to engage in constructive talks with our prime trading partner to find a resolution. The US alone won't cut it."
Just a few days prior, Washington escalated the tension again: Trump ordered the doubling of tariffs on the import of steel and aluminum into the US from 25 to 50 percent.
Balancing the Books: A Positive Annual Trade Balance
Despite the slump in exports to the US, overall German companies shipped goods worth 131.1 billion euros abroad in April, albeit a 1.7 percent decrease compared to March of the current year and a 2.1 percent decline from April 2024. Imports amounted to 116.5 billion euros, showing a 3.9 percent monthly increase and a 3.8 percent yearly rise.
The first quarter saw a slight increase in exports, primarily driven by businesses rushing to beat the stricter US tariff policy. This forward momentum resulted in a 0.2 percent increase in exports for January to April.
The Drag of Tariffs on Industrial Production
However, industrial production in Germany dropped again in April, following a robust March, falling by 1.4 percent from the previous month. The earlier growth in March was also lower than initially estimated at 2.3 percent.
Sebastian Dullien, scientific director of the Institute for Macroeconomics and Economic Research at the Hans-Boeckler-Foundation, believes the situation in the industry is stabilizing, and we may be approaching a positive turning point.
No foreseeable cause for concern, as of now. The Commerzbank anticipates better times ahead for the German economy, citing higher order numbers and the increase in the Ifo business climate index.
A Delayed Recovery: Bundesbank's Prediction
In the first quarter, the fear of higher tariffs temporarily boosted the German economy: with a 0.4 percent growth compared to the previous quarter, it was twice as strong as initially calculated by the Federal Statistical Office. However, the hoped-for recovery in 2025 will not materialize, the Bundesbank predicts.
"Current US tariffs and the uncertainty about future US policy are initially dampening economic growth," Bundesbank President Joachim Nagel explains. "And this hits the German industry at a time when it was just beginning to regain its footing after a long period of weakness."
Tough Sailing Ahead for "Made in Germany"
Germany's exporters are bracing for rough waters: the Bundesbank anticipates a significant decline in exports this year due to US trade policy, with little improvement expected in 2026.
Additionally, the euro's sharp appreciation against the dollar due to US policies erodes the competitiveness of German exports. The strengthening of the common currency makes products from companies in the eurozone more expensive on global markets, particularly when considering the growing competition from China.
DIHK's head of foreign trade, Volker Treier, affirms, "German companies abroad are confronted with deteriorating conditions and growing uncertainty in nearly all world regions."
Billion-dollar Packages: The Engine for Recovery
As the recovery of the German economy is pushed back, state investments in defense and infrastructure are expected to provide an impetus. For 2026, the Bundesbank forecasts a real GDP growth of 0.7 percent, and 1.2 percent for 2027. Yet, the zigzag policy course of US President Trump remains the most potent uncertainty factor.
Key Insights:
- The European economy is being negatively impacted by the ongoing trade tensions with the US.
- The German economy may experience a potential three-year stagnation period if the US tariffs are fully implemented and the EU retaliates.
- The imposition of U.S. tariffs on imported vehicles and parts are particularly affecting the automotive industry in Germany.
- Efforts to diversify trade partners and reduce dependence on US markets could help mitigate the effects of US tariffs.
- Resolution of trade disputes and the implementation of policies that reduce the impact of tariffs could provide a pathway for economic recovery.
Exporters in Germany are urgently calling for constructive dialogue with the US to resolve trade issues, as American tariffs threaten to significantly damage exports, particularly in the industry sector. The US's recent decision to double tariffs on steel and aluminum imports could further aggravate an already challenging financial landscape for German exporters.
In an attempt to compensate for the slump in exports to the US, many German companies have focused their efforts on expanding their sales to other global markets, but the strengthening euro against the dollar due to US policies makes products from German exporters more expensive, potentially eroding their competitiveness.
