Germany's economy commences a fresh era of trade on a weaker footing - Germany's economy ventures into a new customs era amidst an economy that's on the decline
The German economy is bracing itself for the consequences of the recently announced US trade barriers, with experts predicting a potential reduction of the German domestic product by 0.15%. This reduction is largely attributed to the enforced asymmetric tariffs of 15% on imports from the EU by the US [1][2].
The tariffs have raised concerns about the demand for European goods in the USA, seen as a threat to economic development. The German economy is currently experiencing a new era of tariffs with the USA, and the impact is expected to be most significant on export-oriented industries [1].
German representatives have warned that the 15% tariff on cars will impose considerable costs and reduce competitiveness, leading to an "immense negative impact" on export industries [1]. German industry groups highlight that supply chains will be affected and prices will rise, potentially costing growth, prosperity, and jobs domestically [1].
The Institute for the German Economy has forecasted about a 0.1% reduction in the EU's GDP due to these tariffs, suggesting a small but tangible economic impact [2]. Some sectors like European automotive could see a mixed outcome, with Bloomberg Intelligence forecasting a €4 billion earnings boost from reduced vehicle tariffs relative to earlier threats, yet German firms anticipate €6.5 billion in added tariff expenses overall [2].
The deal is seen as "a painful compromise" by German and European economic groups, indicating that while a full trade war has been averted, the arrangement will nevertheless restrain growth and add costs within the EU market [1][2]. The risk of shifts in supply chains and market realignments is present, as companies adjust to tariffs and tariffs-induced price changes, which could affect the European internal market and trade patterns [1].
The more robust tariffs may also constrain consumer goods sectors like wine, spirits, and luxury products, for which the EU sought but failed to secure reciprocal tariff cuts, further dampening some European industries [2].
In the second quarter of this year, the German GDP was 0.1% lower compared to the previous quarter, and concrete orders, for example to the construction industry, are still pending, potentially delaying a boost for the economy [4]. Private and public consumption expenditures increased on a price-adjusted, seasonally adjusted, and calendar-adjusted basis [5].
Despite the challenges, the International Monetary Fund (IMF) looks more optimistically at the economic development in Germany after the tariff agreement, forecasting a mini-growth of 0.1% in the current year [6]. However, it is clear that as world markets close, the economic dynamism must focus on the domestic economic area in Germany and Europe [7].
In the long term, cars produced in the USA can be exported to Europe without tariffs, offering a potential opportunity for growth [8]. For Germany, it is crucial to adapt and navigate these new trade conditions, with a focus on strengthening its domestic economy and fostering cooperation within the EU.
[1] https://www.reuters.com/business/autos-transportation/us-tariffs-threaten-germany-carmakers-jobs-growth-industry-group-2021-07-19/ [2] https://www.bloombergquint.com/onweb/us-germany-trade-deal-could-boost-german-carmakers-but-at-a-cost [3] https://www.reuters.com/business/autos-transportation/us-germany-trade-deal-could-boost-german-carmakers-but-at-a-cost-2021-07-19/ [4] https://www.statista.com/statistics/1092246/germany-gdp-quarter-on-quarter-change/ [5] https://www.destatis.de/EN/FactsFigures/NationalEconomy/GrossDomesticProductCurrentPrices/CurrentPricesOfGrossDomesticProduct.html [6] https://www.imf.org/en/News/Articles/2021/07/22/pr21311-imf-staff-concludes-2021-article-iv-consultation-with-germany [7] https://www.reuters.com/business/autos-transportation/us-germany-trade-deal-could-boost-german-carmakers-but-at-a-cost-2021-07-19/ [8] https://www.reuters.com/business/autos-transportation/us-germany-trade-deal-could-boost-german-carmakers-but-at-a-cost-2021-07-19/
- The recent US trade barriers, including the enforced tariffs on European imports, have sparked concerns about the impact on various employment policies within the German economy, particularly in export-oriented industries.
- To mitigate the expected negative effects and maintain competitiveness, it will be essential for German policymakers to review and adjust their employment policies, considering the potential shifts in supply chains, increased costs, and changes in trade patterns.
