How Trump’s tariffs could hit companies in Germany hard

Among US President-elect Trump’s announced economic plans is a promise to further raise tariffs on imports.

Specifically, Trump has said he intends to enact a blanket tariff of 10 to 20 percent on all imports (including those coming from Europe) and higher tariffs for goods coming from specific target countries, such as a 60 percent tariff on Chinese goods.

Tariffs like these are taxes levied on imported goods, which are intended to protect domestic producers and raise government revenue. 

Economists in the US have warned that these tariffs will effectively be paid by US citizens and residents, because the price of imported products and products made with imparted materials will rise accordingly.

But financial experts in Germany say rising tariffs will have negative impacts on Europe's largest economy as well.

How big are the impacts for Germany?

Leading German economic institutions have been warning about the potentially huge impacts of Trump’s tariff plan since he ramped up his presidential campaign.

The ifo Institute for Economic Research previously calculated that this would likely reduce German exports to the US by around 15 percent.

Additionally, at the end of October, the German Economic Institute (IW) published research suggesting that a US-Europe trade war (initiated by Trump’s tariffs) could cost Germany up to €180 billion over the four-year term. IW suggests that Germany’s GDP would also fall up to 1.5 percent during this time.

"A transatlantic trade war is negative for both sides. Especially for the German export industry, which is already in crisis," said the author of the IW study, Thomas Obst, in a press release.

While the tariffs will impact all of Europe (really all of the US’s trading partners globally), Germany in particular will be dramatically hit. Germany, which remains a big manufacturer, currently exports about twice as much to the US as it imports.

According to Germany's statistical authority, the US is Germany's largest export market by far: in 2023 goods sent to the US were worth €160 billion. Germany’s second largest export market, France, was worth roughly €40 billion less.

It’s possible that under the advice of economic advisers Trump could reduce his tariff plans. Analysts at Goldman Sachs, for instance, expect Trump to swap his 10 percent blanket tariff plan for “a more limited set of tariffs on Europe…”, according to reporting by Fortune. But alternative tariffs, such as one focused on autos and auto parts, would still have dramatic impacts on the German economy.

Outlook for German businesses

Machinery and vehicles make up the largest portion of European exports to the US, followed by chemicals, and then other manufactured goods. So German auto, pharmaceutical and chemical producers can be expected to bear the brunt of the initial impacts of imposed tariffs.

Business Insider reported that shares in BMW, Mercedes, and Volkswagen all fell immediately following Trump's victory.

Perhaps in an effort to prevent share prices from falling further, German business leaders have largely tried to downplay fears about the impacts of Trump’s tariffs.

In a third-quarter earnings call, Oliver Zipse, the chairman of BMW, reportedly emphasised that the company’s strong footprint in Europe helps isolate it from global market changes. Arne Freundt, CEO of the German sportswear brand Puma, expressed a similar tone, suggesting that sales volumes can be shifted to other markets.

The CEO of the aeroplane manufacturer Airbus, however, expressed more caution, suggesting that airline customers would likely face higher costs if tariffs impact the industry.

On the other hand, German companies that have big factories based in the US, might expect to gain something of a competitive edge, according to an interview published by RND. 

Many German pharmaceutical and chemical companies invested more in the USA last year to take advantage of lower energy prices and billions of dollars in subsidies offered by a Biden administration economic stimulus package. Now these companies, could see reduced competition in the US market - gaining a bit of a competitive edge under the tariff scheme.

But advantages for businesses with operations in the US are ultimately more bad news for Germany. Among the factors pulling the German economy down is that increasingly international investors are turning away from Germany as a business location.

"Germany as a location is in danger of losing production and research and thus patents even more to the USA”, Achim Wambach, president of the Mannheim economic research institute (ZEW) told RND.