How Trump’s commerce warfare upends Germany’s financial mannequin – DW – 04/16/2025 | EUROtoday

Trade protectionism is nothing new in human historical past — not even in export-driven Germany, the place within the nineteenth century, then Chancellor Otto von Bismarck tried to launched protecting tariffs on wheat imports.

Pushed by a powerful farmers’ foyer within the Reichstag parliament, Bismark’s tariffs had been supposed to curb rising imports of low-cost wheat from different European nations — a purpose which failed ultimately.

Since US President Donald Trump is thought for his personal, very distinctive tackle historical past, he did not hesitate to usher in a brand new period of protectionism, aiming to protect and isolate the world’s largest financial system by way of an aggressive tariff coverage.

“Most Western economies owe a large part of their prosperity to free trade,” says Carten Brzeski, chief economist at Dutch financial institution ING. “That’s now being rolled back, and it will take time before we see a new balance.”

Pointless knee-jerk reactions

Brzeski believes it could be silly to right away reply to Trump’s coverage with retaliation, much more in order greater than per week after the US president had made his “Liberation Day” announcement of so-called reciprocal tariffs a transparent US technique has but to emerge.

“Responding to Trump right now makes little sense. His policies are too erratic for that,” Brzeski informed DW.

Nevertheless, the European Union has already examined the waters, threatening particular retaliatory tariffs, for instance, on bikes and bourbon whiskey. But bourbon was later taken off the record after Washington hinted that French and Italian purple wine could possibly be the subsequent goal.

A better have a look at the reciprocal tariffs record reveals who Trump is admittedly going after. It’s these nations which might be operating a big and what he calls “unfair” commerce surplus with the United States which might be inflicting the president’s ire. First and foremost “China, Canada, Mexico, and Germany,” mentioned Brzeski.

Despite Trump’s obvious disdain for the EU, the 27-nation bloc as a complete is not his main goal. That function is reserved for China — America’s strongest contender for the title of world’s largest financial system.

Subsequently, the Asian financial powerhouse has been hit with the largest duties — a staggering 145% on all of its items exported to the US, because the White House confirmed on Thursday (April 10).

Brussels ready for Berlin to guide retaliation

But economists Marc Schattenberg and Robin Winkler from Deutsche Bank Research consider Germanywon’t be capable to escape the tariffs, urging German politicians to enter the fray.

The tariff shock, they wrote in a analysis observe, has “increased pressure on the next federal government to defend the competitiveness of the German economy in an increasingly challenging global environment.”

That commentary cuts to the guts of Germany’s present political dilemma. Following snap elections in March, a brand new German chancellor has but to be elected and new ministers are ready to be appointed.

With Germany in political limbo for some time longer, the EU is devoid of a powerful voice from Europe’s largest financial system. Fortunately, the European Commission has agreed to not act swiftly and as an alternative pursue negotiations.

Germany’s export-dependent financial system, in the meantime, has a lot to lose from a commerce warfare between the Trump administration and far of the remainder of the world. Industries comparable to cars, chemical compounds, equipment, and prescription drugs have a powerful presence within the US markets.

A lack of US market share, argues Brzeski, might “not sound dramatic” at first look on condition that solely about 3% of the EU’s gross home product (GDP) is tied to US exports. But in Germany, “hundreds of thousands of jobs” rely on exports to the US.

Moreover, if Trump succeeds in pushing Chinese suppliers out of the US market, Beijing could possibly be tempted to dump its closely backed extra capacities on the European market, undermining complete industries right here.

No advantages in a commerce warfare

ING’s Carsten Brzeski thinks that, “over time,” German companies with a concentrate on home markets may reap some advantages from a shift in commerce patterns. But even these will not “escape the dance,” he added, as disruptions in export industries would inevitably ripple by way of the broader financial system.

And what about relocating German operations throughout the Atlantic — a main purpose of Donald Trump’s commerce coverage?

“During the final years of the Biden administration and the Inflation Reduction Act, many European companies were already considering that,” mentioned Brzeski, as deregulation, decrease vitality costs, and tax cuts made the US “even more appealing.”

But for the time being, the US president’s “erratic” financial insurance policies and tariff chaos have created “major doubts about legal certainty, and few business leaders are in a hurry to move there.”

As Europe scrambles to search out an applicable reply to expanded US tariffs, policymakers are contemplating levying a digital tax on America’s Big Tech firms.

But Fabian Zacharias, managing director of Germany’s digital trade affiliation, Bitkom, warns in opposition to utilizing what’s come to be known as Europe’s “nuclear option” within the commerce warfare.

“Imposing a European digital tax would be the worst possible response. Trying to answer a trade policy issue with a new tax is completely misguided,” he lately informed Editorial community Germany — the joint newsroom of Madsack Media Group. Instead, he advocates for “medium-term deescalation.”

A special possibility has been instructed by Gabriel Felbermayr, head of the Austrian Institute of Economic Research (Wifo). As the EU can impose export duties on items leaving its customs territory, the instrument could possibly be used to tax items the US should supply from Europe.

Felbermayr informed DW that high-tech equipment for semiconductor manufacturing, presently produced nearly completely in Europe by Dutch firm ASML, could possibly be focused.

A hefty export tax on these machines would price US firms dearly and doubtlessly pressure the US authorities to compromise.

Brzeski, nonetheless, is not satisfied by an export levy on such items. “It would be better if [EU] policymakers now focused all their efforts on investments, structural reforms, reducing bureaucracy, and deeper integration like a capital markets and defense union,” he informed DW.  Such reforms, he added, may obtain “far more than a long list of retaliatory tariffs.”

This article was initially written in German.