24
JAN
2025
The economic dependence of the Federal Republic of Germany on the United States has increased considerably in recent years. The USA has been the largest sales market of the German export industry since 2015; in 2024, for the first time since 2015, they also rose again to the largest trading partner in Germany, ahead of the previous number one, China. The reason is that Germany's business in China is weakening – a consequence of the US economic war against the People's Republic, in which Germany and the EU can increasingly be integrated. While trade with the United States rose to a volume of 255 billion euros in 2024 [1], trade with China declined for the second time in a row due to increasing tensions with Beijing and the associated risks. The USA is far ahead in German foreign investment; the statistics of the Deutsche Bundesbank show a stock of direct and indirect German direct investment in the United States of 448 billion euros for 2022, while German direct investment in China only reaches 122 billion euros. The Federal Republic of Germany earns more from trade with the USA than from trade with all other countries: Already in 2023, the surplus of German exports compared to imports in the case of the USA was more than 63 billion euros.
The high economic dependence on business with the USA means that any new US tariffs will hit the Federal Republic particularly hard. France, for example, would be better off; in the ranking of its foreign trade partners, the United States is only in fifth place behind Germany, China, Italy and Spain. 2] Already in the autumn, the close-to-business Cologne Institute of the German Economy (IW) presented calculations according to which a customs battle with the USA could cost the German economy up to 180 billion euros by 2028; losses of 1.5 percent of the German gross domestic product are to be expected for 2027 and 2028. 3] The Munich ifo Institute says that the tariffs announced by US President Donald Trump could cause German exports to collapse by up to 15 percent; for the highly export-fixed German economy, this would be a serious disaster. 4] The Institute for Macroeconomics and Economic Research (IMK), in turn, points out that any US tariffs could – depending on the scenario – cost between 200,000 and 300,000 jobs in Germany. This is because, it is said, that a good 1.2 million jobs depended on the enormous German exports to the United States. Losses in US exports are therefore weighing heavily.[ 5]
Already US tariffs on imports from Mexico - Trump has threatened with tariffs of 25 percent - would have serious consequences for German companies. This is because many German companies make use of the North American Free Trade Agreement USMCA (United States-Mexico-Canada Agreement) and have goods manufactured for the US market in Mexico at low wages. This applies to a large extent to German car companies, for example. For example, approximately 60 percent of the vehicles sold by Volkswagen in the United States are produced by VW de México in Puebla, Mexico. 6] 29 percent of the Audi vehicles newly registered in the USA in 2024 were also manufactured in Mexico.[ 7] If tariffs of 25 percent had to be paid on the Mexican-US-American border, the profit would at least be drastically reduced, possibly even completely eliminated. In principle, the car companies from Germany and the EU could probably somehow absorb such losses, according to an expert from the consulting firm S&P Global Ratings. However, the collapses in the Chinese business and the difficult market situation in Europe have already weakened them considerably. 8] But if their US business also collapses after their business in China, then the German automotive industry is said to be threatened with the "descent from global" to only "European corporations". 9]
The fact that the export-fixed German industry, should the USA actually impose tariffs, has to expect harsh losses domestically and also at foreign locations such as Mexico, pushes German politicians and business representatives on the defensive: Due to the structure of bilateral economic relations, it seems unrealistic to be able to threaten the United States with losses of comparable hardness through counter-duty duties; unlike in Germany, this is currently being discussed in Canada, where as a last resort even a stop to oil supplies to the USA is being considered. Different in the Federal Republic: One should "not crawl into the duckmäustum", says Economics Minister Robert Habeck, for example; however, one must still act with "an outstretched hand". 10] Already at the beginning of the year, CDU chancellor candidate Friedrich Merz had pleaded for a "positive agenda" "that benefits American and European consumers alike". 11] "The EU should make offers for economic cooperation to the USA," demanded Wolfgang Niedermark, board member of the Federal Association of German Industry (BDI) yesterday, Thursday.[ 12] EU Commission President Ursula von der Leyen had already called for "good relations with the new government" in Washington to be built and a "positive transatlantic agenda" to be designed; she advocated for the purchase of liquefied US gas to an increased extent. 13]
This would indeed correspond to US interests. US President Trump has already started on Monday with some of his first decrees to deregulate the entire US energy industry. In particular, it has lifted restrictions on oil and gas production off the US coast and off Alaska and lifted current limits on the export of liquefied natural gas. In the industry, there is already talk of an increase in natural gas production to double the current amount or even more. This is facilitated by the fact that Trump has initiated the withdrawal from the Paris Climate Agreement and therefore no longer has to take into account climate concerns. It would be advantageous for the sale of the - usually fracked - natural gas if Germany and the EU committed themselves to certain acceptance volumes. With its measures, Washington is not only aiming at the individual profit of the fracking industry; as Foreign Minister Marco Rubio recalled on Tuesday, it also explicitly has a political goal in mind - the achievement of "energy dominance". 14] The dependence of Germany and the EU on the United States would thus increase even more.
[1] USA overtakes China as the most important German trading partner. handelsblatt.com 19.01.2025.
[2] La France et ses partenaires économiques, pays par pays. diplomatie.gouv.fr.
[3] S. on the Transatlantic Rivalry.
[4], [5] Trump's tariff plans threaten German jobs. tagesschau.de 15.01.2025.
[6] Alexander Demling: How Volkswagen, BMW and Mercedes arm themselves against Trump's tariffs. spiegel.de 21.01.2025.
[7], [8] Jordyn Dahl: Trump's US-Mexico tariffs threaten to hammer European carmakers. politico.eu 20.01.2025.
[9] Alexander Demling: How Volkswagen, BMW and Mercedes arm themselves against Trump's tariffs. spiegel.de 01.21.025.
[10] Leonidas Exuzidis, Silke Kersting, Martin Knobbe: "We don't have to let ourselves be pushed around". handelsblatt.com 21.01.2025.
[11] Merz calls for a new attempt at free trade with the USA. faz.net 02.01.2025.
[12] Klaus Weber: How Europe's economy can hold its own. zdf.de 23.01.2025.
[13] Thomas Gutschker: How the EU appeases. Frankfurter Allgemeine Zeitung 21.01.2025.
[14] Edward Wong: Rubio Oversees Halt to Foreign Aid and Meets With Asian Diplomats on Day 1. nytimes.com 21.01.2025.