Europe’s largest, export-oriented economic system is uncovered to Trump’s tariffs, with German automakers in Mexico more likely to see knock-on results of a possible commerce struggle.
US President Donald Trump on Tuesday sparked a tariff struggle with the US’ three largest buying and selling companions, slapping 25% tariffs on Canada and Mexico, and doubling an already imposed import tariff on China to twenty%.
On Thursday, he backtracked and postponed the tariffs on a number of imports from Mexico and a few from Canada, however emphasised he would impose extra tariffs firstly of April.
The prospect of a global commerce struggle sparked by Trump’s tariffs comes at a foul time for the German economic system, which shrunk for the second yr in a row in 2024.
As soon as an financial powerhouse, Germany is projected to be the bloc’s weakest performer in 2025.
But specialists recommend that the affect of a tariff struggle between China, Mexico, and Canada would have a restricted impact on Germany— at the least in the intervening time — except for impacting German producers and suppliers in these three nations.
“At the least within the medium run, one would count on some commerce diversion within the sense that merchandise that have been designed to go to the US, for instance from China, would now find yourself on the European markets,” Julian Hinz, Professor of Worldwide Economics at Bielefeld College and head of the Analysis Group Commerce Coverage on the Kiel Institute for the World Economic system, advised Euronews.
The US might nonetheless additionally import barely extra from Europe rather than China, Mexico and Canada. “The results blur the general image, abit” Hinz says.
German automobile corporations, together with Audi, produce vehicles in Mexico. In response to knowledge from the German Automotive Affiliation (VDA), German carmakers produced 716,000 vehicles within the nation — primarily for the US market.
If Trump’s tariffs imply German vehicles produced in Mexico can’t be offered as simply, or are way more costly now within the US then this “might have an even bigger impact,” Hinz says.
On Thursday, Trump granted automakers in Mexico and Canada a one-month tariff exemption after negotiating with main business figures.
Nevertheless, as soon as the month is over, German economist Thomas Hutzschenreuter says that tariffs and subsequent decreased demand for German vehicles from Mexico would affect German, European, Mexican workforce.
“Unemployment charges might be affected” Hutzschenreuter advised Euronews.
Tariffs on the European Union
Consultants warn that the image adjustments dramatically if Trump decides to slap tariffs on the European Union — a proposal he threatened in late February.
“It implies that particular person corporations must diversify their gross sales all through the world. In different phrases, they should deprioritise the US market and better prioritise different markets. That’s at the moment being mentioned in most German corporations,” Hutzschenreuter mentioned.
”Nevertheless, the issue is that you simply can not react as shortly as tariffs are being imposed. Response takes extra time. And due to this fact you’ll be affected quick time period.”
One sector notably uncovered is the nation’s automotive business, which in 2023 made up 17% of Germany’s whole exports, in accordance with figures from the Germany Commerce and Make investments (GTAI) workplace.
Germany’s automotive business entered disaster mode final yr, with once-might carmakers corresponding to Volkswagen closing factories and reducing 1000’s of jobs.
The pinnacle of the VDA, Hildegard Müller, commented in February that Trump’s tariff threats of 25% on the European Union have been a “provocation”.
“Tariffs are the mistaken negotiating software,” Müller mentioned. “The chance of a worldwide commerce battle with unfavourable results on the world economic system is excessive.”
In response to simulations undertaken by the Kiel Institute for World Economic system, elevated tariffs would result in financial losses and inflation in each the EU and the US.
In Germany, this might affect the automotive and mechanical engineering industries, with the Kiel Institute displaying that whole manufacturing would lower by as much as 4% for vehicles.
“That’s a giant quantity for an business that’s already struggling,” Hinz says.
One factor that must be emphasised for Germany nonetheless, and the EU as an entire, is that though the US is a vital buying and selling associate, roughly 10% of exports go there, Hinz mentioned.
“Even within the worst case situation of dramatic tariffs imposed by the US, most EU imports keep within the EU, and there are many different buying and selling companions with which commerce beneath WTO guidelines and free commerce agreements works completely effectively, will proceed to work as earlier than.”
“The US hurts itself most right here,” Hinz concludes.