Small and Medium-Sized Enterprises (SMEs) in Germany express concerns over the indirect consequences of US tariffs

US Tariffs: German SMEs Brace for Indirect Fallout, Keep an Eye on Cost Shifts

German Medium-Sized Enterprises Worry More About Secondary Effects of US Tariffs - Small and Medium-Sized Enterprises (SMEs) in Germany express concerns over the indirect consequences of US tariffs

Whenever you're dealing with US tariffs, it's all about the indirect consequences that haunt German companies the most, a DZ Bank study reveals. Firms in the metal, automotive, and machinery sectors gripe that the business of their trading partners in the USA might take a hit due to the tariffs, which would, in turn, negatively impact their own business. Approximately two-thirds of the companies in these sectors expect indirect negative consequences.

While 29% of the companies remain unbothered about the US tariffs, potential counter-tariffs imposed by the EU could strike a harder blow than the actual import duties in the US for German firms. A quarter of the firms fear direct consequences, such as higher purchasing prices, and just 19% expect no negative impacts.

However, DZ analyst Claus Niegsch believes that the whining over higher costs might be premature. US goods could become pricier, but goods initially intended for the American market, their fate altered by Trump's tariffs, might end up in Europe, bringing down prices here.

The study polled 1,000 owners and managers of German SMEs between March 6 to March 26, revealing their concerns about the 25% proposed tariff for the automotive sector and the tariffs of 25% on steel and aluminum already in effect since March 12. The study is said to be representative of the landscape.

GermanyDZ Bank AGUSASMEsEUFrankfurt am MainMetalMachinery

What's at Stake for German SMEs?

1. Economic Headwinds: The imposition of US tariffs can mean elevated costs for German exporters in the metal and machinery sectors, thanks to increased export costs resulting from retaliatory measures or direct tariffs from other countries.
2. Supplier Squeeze: Suppliers in these sectors might find it tough to maintain stable supply chains due to the tariffs and potential countermeasures, culminating in increased costs or delayed deliveries.
3. Market Swings: The trade tensions and tariffs could cause market volatility, affecting demand and pricing for the products of these sectors, potentially denting profit margins for German SMEs.

Metal Sector: Balancing the Metals

The metal sector might encounter difficulties due to increased tariffs on steel and aluminum, causing a surge in the cost of raw materials and a decline in the competitiveness of German metal products in the global market.

Automotive Sector: Skid Marks on Profitability

The automotive sector could experience reduced profitability due to tariffs affecting both exports and imports of automotive parts, as seen in the case of Mercedes-Benz.

Machinery Sector: Spinning the Wheels

The machinery sector could face increased costs for imported components, potential reduced demand due to economic uncertainty, and a diminished competitive edge in the global market, all because of the US tariffs.

Adapting to a Changing Landscape

1. Diversified Markets: To cure the anxiety, German SMEs may consider diversifying their export markets, thus reducing reliance on the US market.
2. Diplomatic Engagements: German SMEs can benefit from government initiatives to engage in bilateral trade negotiations aimed at lowering or abolishing tariffs on specific products.
3. Greenspace: Investing in sustainability and ecological compliance could offer a competitive advantage to German SMEs in navigating intricate regulatory environments and appealing to customers keen on eco-friendly products.

• Vocational Training: With the uncertain business environment caused by US tariffs on German companies, efforts in vocational training could provide a strategic advantage. By training workers in a variety of skills, these businesses can adapt more quickly to changing market conditions and diversify their offerings.
• Political Engagement: Amidst the tensions in global trade, active participation in political discussions can prove beneficial for the SMEs. Engaging in dialogue with policymakers can help SMEs advocate for their industry's interests and work towards minimizing the impact of tariffs through trade negotiations.
• Finance and Industry: As a result of potential increased costs due to tariffs, the metal, automotive, and machinery sectors may require additional financial resources to maintain their operations. SMEs can seek assistance from financial institutions and industry associations for support in managing the financial implications of the trade tensions.

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