The transatlantic rivalryAfter Trump's election victory, the German economy is threatened with serious collapses due to the threatened US punitive tariffs: up to 180 billion euros within four years. Trump follows a changed interest situation of the US industry.07 NOV 2024
Got away with it
With regard to the German US business, economists had just given the go-ahead. For example, the business-oriented Institute of the German Economy (IW) from Cologne reported that the Biden Inflation Reduction Act (IRA), which supports the industries of the energy transition with three-digit billions, has not yet led to the feared emigration of companies from Germany to the United States. At least in the short term, German industry has even been able to benefit: The export of machines and electrical equipment, from classic products in the construction of climate-friendly factories, from the Federal Republic to the United States, increased by ten percent last year. Thanks to a specially introduced exception for leased vehicles, there is also no disadvantage for German motor vehicle exports to the USA. 1] Of course, it is conceivable, according to the IW, that Donald Trump will repend this exception, which will lead to disadvantages for German car manufacturers. US observers do not expect the future Trump administration to leave the IRA; even corporations in the US oil and natural gas industry are committed to maintaining the program, as they benefit significantly from it.[ 2]
Trump's threat of punitive tariff
However, if the designated US president Donald Trump really introduces the punitive tariffs threatened in the election campaign, then high losses are to be expected, especially for German industry. In a recently published study, the IW has revised upwards damage forecasts, which it estimated at a good "123 to 146 billion euros" in the summer alone for the Federal Republic [3], to 127 to 180 billion euros [4]. Losses of 127 billion euros in the four-year period 2025 to 2028 are therefore to be expected if Trump should impose punitive tariffs of 10 percent on all US imports and punitive tariffs of 60 percent on imports from the People's Republic of China. The calculations are priced that the EU imposes counter-toll duties of the same amount. Of course, if the transatlantic trade conflict also escalates and the punitive tariffs of both sides rise to 20 percent, the damage could reach 180 billion euros, writes the IW. Although the USA would also have to suffer losses of 686 or 874 billion US dollars for 2025 to 2028. However, the US economy will be able to consolidate to some extent by 2028 at the latest.
"A disaster for Germany"
According to the IW, however, the EU and Germany in particular would be hit hard in the long term. Accordingly, the EU can expect an increase in economic downturn from 0.29 to 0.42 percent in 2025 to 0.91 to 1.34 percent in 2027. For 2028, the IW predicts a decline of 0.89 or 1.33 percent. The Federal Republic is facing an even greater minus, which will rise from 0.34/0.48 percent in 2025 to 1.08/1.53 percent in 2027; in 2028, the German economy will therefore remain with a decline of 0.99/1.45 percent.[ 5] Because exports shrank significantly due to punitive tariffs, a significant collapse in private investments can be assumed, the IW judges, which assumes an investment minus of 4 percent compared to the basic scenario to be expected without the punitive tariffs. Could be hit hard, as they exported particularly large quantities of goods to the USA, "the mechanical engineering, the pharmaceutical industry and the ... Auto industry," judges IW director Michael Hüther. 6] The mechanical engineering and the automotive industry are already suffering from alleged permanent collapses in the China business.[ 7] Accordingly, Hüther explains the feared burglaries in the USA: "For Germany, this would be a disaster for export-intensive Germany."
Interests of the US industry
Trump's punitive tariff policy does not follow the whims of an eccentric president, but fundamental interests of the US industry. This is evidenced by an investigation presented by scientists from the Vrije Universiteit Amsterdam and the Freie Universität Berlin. 8] According to this, the global imposition of open markets, to which the United States had traditionally committed itself, was primarily based on the fact that the US economy was strong enough to assert itself internationally and conquer world markets. This shaped the politics of the younger US administrations up to that of Barack Obama. The policy of the Trump administration, on the other hand, as the investigation shows, was mainly supported by two factions for which open markets were either subordinate or even harmful. On the one hand, these were real estate companies - i.e. the industry from which Trump himself comes - and on the other hand, these were corporations that were no longer able to assert themselves against international competition - such as steel companies. The overpowering competitors, which US companies could no longer quite cope with, were often those from China. The punitive tariff policy was therefore initially directed primarily against the People's Republic.
Trade surpluses in the crosshairs
Since it has not been possible to defeat the Chinese competition, Trump has announced that the measures against the People's Republic will be tightened. In the rapidly escalating global rivalry, however, he is now also aggressively targeting competition from Germany and the EU. In fact, the Federal Republic has recently made as high a profit from trade with no country as from trade with the USA; last year, imports from the United States amounting to 94.4 billion euros were compared to exports to the country worth 157.9 billion euros. The trade surplus thus reached 63.5 billion euros - almost a third of the total German trade surplus, which amounted to 209.6 billion euros in 2023. The high revenues from the German US business contributed greatly to Berlin's close foreign policy cooperation with Washington. The fact that the second Trump administration threatens to question them suggests a new deposal movement of Germany against the United States. The EU has already announced that it will respond to new US punitive tariffs with counter-tariffs and has made concrete preparations for this. This marks a phase of new transatlantic conflicts.
[1] Jürgen Matthes, Samina Sultan, Thomas Obst: US Inflation Reduction Act: Manageable Effects on Germany. IW Summary Report No. 83. Cologne, 05.11.2024.
[2] Collin Eaton, Benoit Morenne: Big Oil Urges Trump Not to Gut Biden's Climate Law.
wsj.com 06.10.2024.
[3] Hubertus Bardt: Trump or Harris or ...? What Europe must prepare for. IW-Policy Paper 5/2024. Cologne, 23.07.2024. S. German companies also support Trump.
[4], [5] Thomas Obst, Samina Sultan, Jürgen Matthes: What threatens the transatlantic trade relations under Trump 2.0? Of tariff increases and retaliatory measures. IW Report 42/2024. Cologne, 24.10.2024.
[6] Michael Hüther: US presidential election: "For the German economy, President Trump would be an expensive disaster".
iwkoeln.de 04.11.2024.
[7] S. The end of the German export model.
[8] Bastiaan van Apeldoorn, Naná de Graaf, Jaša Veselinović: Trump and the Remaking of American Grand Strategy. The Shift from Open Door Globalism to Economic Nationalism. Cham 2023