Donald Trump’s election victory in the United States is the culmination of the “perfect storm” that has been hanging over the German economy since the pandemic. Even if the trade policy of aggressive customs tariffs that the next tenant of the White House intends to apply is worrying in the four corners of the world and, of course, in Europe, Germany is the big weak point. The traditional European export machine has already suffered in recent times and Trump’s pretensions threaten a blow that could be fatal in the midst of the economic slump (stagnant growth since covid and continued brush with technical recession) and political (the weakness of the tripartite government led by the social democrats has just exploded) which is crossing the country, nicknamed by the international financial press – as 20 years ago – “the sick man” of Europe.
Everything seems to have conspired against the historic “economic locomotive” of the Old Continent. The end of the pandemic came with the end of the cheap Russian gas by the war a Ukraine (indispensable for the muscular Teutonic industrial arm), some interest rate much higher (after the inflationary wave) and a more pronounced change in dynamics since China (the Chinese “friend” already buys less added value from Germany because of its weakness after covid and because it produces it itself). Too much for Berlin, which was already experiencing structural headwinds and now sees its American “friend” giving up at the top of the cliff.
Although far from the expected 60% effect on China, Trump’s proposed US tariffs of 10% for Europe pose a clear threat. Especially for a Germany that saw how the aforementioned American “friend” continued to buy from it while Beijing, its trading partner par excellence in recent decades, distanced itself from it. A transcendental “lifeline” for an economy whose exports represent nearly 50% of GDP.
THE Exports to the United States represent around 3.8% of German GDP and represent 10% of the country’s total exports. As economist Stéphane Colliac confirmed this summer in a BNP Paribas report, the trend has gone further: “Exports to the United States are already stimulating German foreign trade, which has contributed to an important change: the return of the euro zone as the leading supplier to the United States, ahead of China. For Germany, exports to the United States represent a real engine of growth: +5.6% year-on-year over the first four months of 2024 to the United States and +40.4% compared to the same period of 2019. (compared to +3.2% to China compared to 2019)”.
Daniel Kral (Oxford Economics): “If the United States becomes protectionist, Germany is finished”
Given these data, it is normal for Germany to hold its breath and analysts put themselves in the worst. Daniel Kral, analyst at Oxford Economics, had already providentially warned a month ago, when there was still hope in a victory for the Democrats in the United States. “China has moved up the value chain and is no longer the engine of German export-led growth. If the United States becomes protectionist, Germany is lost,” the analyst published in a press release. job of X in which he uses the expression is cookedwhich can be translated into Spanish as “is lost” or “finished”.
The electoral result – with Trump’s victory in the votes, in the Senate and in the House of Representatives – confirmed the worst omens. “Looking ahead, the short- and long-term outlook for the German economy has darkened. A second Trump term and the foreseeable new trade tensions will affect the German economy,” diagnoses Carsten Brzeski, chief economist at ING and regular “doctor” of the agency. The German economy. “Although Exports could increase in the short termas importers try to get ahead of tariffs, will probably fall if Trump carries out his threat”, asks Franziska Palmas, of Capital Economics, without any hot topic.
The hole may be particularly large for the automotive sector in difficultyonce the “jewel” of German industrialism. “It doesn’t take much imagination to imagine that US tariffs on European cars will plunge the German auto industry into deeper problems,” Brzeski said. National insignia, Volkswagenand other historic brands like BMW either Mercedes-Benz They keep releasing negative headlines in the press: successive drops in profit estimates, constant shocks to Chinese demand, factory closures even on German soil, drop in sales due to cheaper Chinese models… Trump’s commercial blow would be the “coup de grace” and, in anticipation of this, investors have already penalized brands like BMW on the stock market yesterday, which wiped out more than 7%.
The consequences would not take long to spread to most of the economy. “He weakening of foreign demand and increased uncertainty at a time when profit margins are reduced would harm investment and cloud prospects for jobespecially if we take into account the considerable accumulation of labor after the pandemic,” warns the UniCredit Research team led by Daniel Vernazza in a note to clients.
The negative effect It can even reach German pockets. “Higher tariffs divert U.S. demand away from goods produced in the Eurozone and Germany, thereby reducing inflation in the Eurozone. However, increased U.S. tariffs cause the dollar to appreciate, making the imports from the eurozone more expensive In addition, retaliatory tariffs from the EU can be expected with a delay from 2026, which will also lead to an increase in consumer prices in Germany”, explains. Jörg Kraemer of Commerzbank.
In a report titled precisely “What Trump’s victory means for Germany”, Krämer outlines another negative consequence for Germany of Trump’s return, which is nothing more than a largest corporate exodus from Germany to the other side of the Atlanticintensifying a phenomenon already underway: “(The president-elect) announced his intention to reduce the corporate tax rate from the current 21% to 15%. After the experience of his first presidency, it is likely that he will Implementing this plan widely would put Germany even more on the defensive. The effective corporate tax rate (including trade tax) is already significantly higher than in the United States or other European competitors. , “that Trump’s victory will increase tax competition and support. the tendency of German companies to increasingly relocate their production to the United States. »
Ukraine, NATO and national politics
Another negative point is found by Kramer in the geopolitics. Although this is an issue that affects Europe as a whole, Germany attracts a lot of attention in everything around it. Ukraine And the future of NATO: from criticism of Chancellor Olaf Scholz for his hesitant support for Ukraine to the Biden administration’s pressure on the European “locomotive” to increase its defense spending to 2% of GDP. Trump’s return opens up many unknowns on this front, but the president’s ambivalent attitude toward NATO poses a long-term risk that is often underestimated, Kramer points out. “Trump will likely also pressure European countries to spend more on defense, as he did in his first term,” says UniCredit’s Vernazza.
“This would not be a problem if there were no significant military threats in Europe. But Russia is aggressive and the defensive capabilities of European democracies are weak. So there is some risk that after a possible victory over Ukraine in a few years, a heavily armed Russia turns against the Baltic countries for example, without unlimited security guarantees from the United States within the framework of NATO, Investors could at some point begin to price in Europe’s military conflicts with a low but not negligible probability. This would have a clearly negative impact on financial markets and economic development,” explains the German economist.
Brzeski warns at ING that uncertainty over US support for Ukraine will not only weigh on investment and consumption outlookbut it is also a major political issue in Germany, which led to the recent collapse of the German government and its economic implications with the potential scenario of a new elections next Marchof which the only viable arithmetic option that can emerge at the moment is the “umpteenth” grand coalition between the CDU and the social democrats.
“In the short term, this collapse is likely to weigh on confidence and slow investment and consumption. On a more positive note, a new government could, and I emphasize cannot, , finally put an end to the current paralysis of the political economy in Germany and provide the country with the long-awaited solution. certainty and direction in terms of economic policy on how to restore growth and competitiveness”, the economist is cautious, recognizing that Germany’s growth prospects will largely depend on “the ability of a new government to strengthen the economy national amid a possible trade war and even stricter industrial policies in the United States.
