On May 6, Friedrich Merz became the next German Prime Minister. In the formality of electing him to be a member of the federal government (German Parliament) to become the next prime minister, Mr. Melz was unable to obtain enough votes in the first round to obtain approval from the MP. This has never happened to any prime minister before Germany after the war. Mr. Meles managed to get 325 votes in the second round (the candidate needs at least 316 votes) and was finally sworn in. The ruling coalition includes Mr. Meers’ Conservative Christian Democrats (CDU/CSU) and the Center Social Democrats (SPD).
Although immigration was one of the key planks that Mr. Meers doubled during the campaign, the focus shifted again to the German economy.
Speaking on national television after becoming Prime Minister, Mr. Meers said: “We are experiencing profound structural changes, but for me the most important message is that Germany must remain a manufacturing country. We will improve the framework conditions of the economy so that in the next few years, or among the highest effective countries in the world’s industrial industry, we will continue to be an industrialized country.”
The German economy has shown negative growth for two consecutive years. Things are not too hopeful for 2025, either, after U.S. President Donald Trump’s tariff announcement.
Economic tensions in Germany have been rising since the European Union imposed a 20% tariff on the EU (now 10% due to a 90-day pause) since the announcement of Mr. Trump’s “Liberation Day” on April 2. Many economic institutions and think tanks have conducted simulated research on this impact on various EU member states. Germany is the country with the most exports to the United States (in the EU group) faces many challenges.
“The key message to Donald Trump is that Germany is back on track. Germany will meet its defense obligations and is willing to strengthen its competitiveness. Germany will be a very strong partner within the EU,” Merz said shortly after his party won the German election in February. Mr. Melz went on to say that President Trump’s policies “increase the risk of the next financial crisis faster than expected.”
The automotive industry has the greatest influence
Despite Mr. Trump’s announcement of a 90-day pause, the 25% tariff on automobiles and auto parts remains in place. Germany exported nearly 4,50,000 cars to the United States in 2024. It is estimated that the new tariffs will increase an average of $6,000 per imported car in the United States
“Tariffs can put a significant burden on the global supply chains that are closely intertwined by companies and the automotive industry, especially the negative impact on American consumers,” said Hildegard Müller, president of the German Automobile Industry Association (VDA).
Sonali Chowdhry, a trade economist at the German Institute of Economics (DIW), co-wrote a policy summary examining the impact of U.S. tariffs on the EU.
Quantitative model analysis conducted by DIW and KIEL World Economics Institute, note that if there is a lasting trade war between the EU and the United States (the two regions impose the same tariffs on each other), EU exports to the United States will be cut in half. Ms. Jodri noted that this could have an impact in the EU industry.
“Germany in particular may be considering a real GDP contraction of 0.3%. This is not only an increase in actual tariffs, but also uncertainty caused by the threat of tariffs, as businesses and consumers delay investments and purchases, which will curb economic activity,” Ms. Chowdhry said.
Thomas Inst, a senior economist at the German Institute for Economic Research (IW), believes that the impact of tariffs will occur immediately in the United States, and over time, the impact of tariffs will accumulate in Germany.
“We did some research on the IW to estimate the impact of Trump’s tariffs on Germany. If the EU is to 20% anti-competitive retaliation against the United States, it could reduce Germany’s GDP by 1.5% until 2028. In Germany, in Germany, it will build an economic structure over the next four years, as we will see the impact of the second round. The second round of impact refers to the indirect consequences that affect wages, prices and other economic variables (from tariffs in this case).
“Reduce, no revenge”
Since Germany is part of the EU, it cannot retaliate unilaterally when it comes to tariffs. Ms. Choudhury pointed out that the EU has little incentive to retaliate because most of the EU’s imports from the United States are oil and gas, medicines, chemicals, etc.
“Unless the EU is willing to bear higher energy costs and disrupt these supply chains, downgrades rather than retaliation makes more sense. While seeking aligning with the U.S., the EU’s interests are in the EU’s interests while expanding trade with other partners,” Ms. Chowdhry said.
Mr. Obs agreed. “The EU does not want to retaliate, but provides something on the table that might reduce the impact of tariffs. It also shows that the EU has taken a stronger stance against China. The EU has a list of targets and services that the United States can retaliate, but that’s not on the table,” Ste unit said.
On May 1, European Trade Commissioner Maros Sefcovic agreed to increase imports from the United States to reduce the trade deficit, which Mr. Trump pointed out. Europe hopes to do this by buying more agricultural products like liquefied natural gas and soybeans.
Additionally, on May 8, the European Commission said it would controversy with the World Trade Organization’s tariff policy on the United States and its responsibilities for automobiles and auto parts, which is as high as 25%. If the deal dialogue with the United States fails, it is also preparing an anti-election list of U.S. products, totaling 95 billion euros.
In a statement, the European Commission pointed out that the U.S. imposition “blatantly violates basic WTO rules.”
“Deepening other partnerships”
“A longer-term strategy for the EU will be to deepen trade relations with existing partners such as Canada, Mexico, Japan, South Korea, etc. Deepening trade with these partners and expanding the Free Trade Agreement (FTA) partners will neutralize the economic damage to the U.S. tariffs, which will lead Ms. Jodri said that this will increase Ulien’s shock and shock.
If the EU decides to double the FTA, India may be a potential beneficiary.
Ms Chowdhry said: “While the EU’s deep-seated Indian FTA will soon be implemented, sectoral agreements focused on tariffs (for example, in the industrial products sector) will be more feasible.”
Mr. Obs noted that the EU-Kusul FTA (the proposed trade agreement between the EU and Masur countries (Argentina, Brazil, Paraguay and Uruguay)) has the potential to launch a lot of positive things for Europe.
“However, there is no FTA coming in India. However, the first international trip to the newly formed European Commission was to India, which says a lot. India is seen as a partner in the Asia region, which is a very attractive market, but it is also a very protectionist person,” Mr Obst said.
Political Challenges
Mr. Meles is considered a split character, which was shown on the first round of May 6 against his members who voted against him. If Mr. Meers does not get enough votes in the second or consecutive rounds, it could create further confusion about who will lead the next German government. Stocks reacted negatively after the first round of votes on May 6. This shaky start of the new government has raised doubts about whether the alliance can survive in four years and resolve Germany’s economic difficulties.
Mr. Obs expects the CDU/CSU and SPD leagues to be more capable of leadership.
“They seem to understand the economy and be willing to do something about it compared to the separatist coalitions of early governments.”
However, Germany’s (AFD) far-right alternatives have a lot of involvement. It is the biggest opposition party, and it can cause interference in terms of new economic reforms.
Mr Infer pointed out that Germany’s corporate tax (30%) is the highest among EU and OECD countries.
“In the league talks, it has been agreed to reduce it by as much as 5%, but only after 2028. At the same time, the league needs to do something that stimulates investment and inspires companies to invest in Germany,” he said.
“Not only in Germany, but also in the EU, the bureaucracy needs to be lowered. It requires a systematic, comprehensive reform agenda to have a lasting impact on the economy.”
Fear of Chinese dumping
When Mr. Trump announced a 90-day suspension of tariffs on most countries, there was one country that did not benefit – China. On April 9, the tariff rate against China was 145%, and China announced a violation of U.S. imports of 125%.
It was not until May 12 that the Trump administration announced a 90-day suspension of tariffs on China, which is now 30%.
However, in many circles in Germany and Europe, there are concerns that this will lead to China dumping its excess production in Europe.
According to Ms. Jodri, China can flow trade to Europe. “The EU must be very cautious about this because it cannot withstand the spiral of being invaded by global protectionism.
European Commission President Ursula von der Leyen talks with Chinese Prime Minister Li Qiang about establishing a mechanism to track trade transfers. According to the European Commission release, “President Von der Leyen highlighted China’s key role in addressing trade transfers caused by tariffs, especially in sectors that have been over-affected by global productivity.”
Mr. Obs believes that pouring will depend to a large extent on which department is involved.
“It’s no big deal when it comes to standardizing goods, as Germany or the EU are not directly competing with China on this side. One industry that is very concerned is the automotive industry. This is one of the reasons the EU imposed tariffs on electric vehicles imported from China last year. The industry that produces goods adds high value to the economy.
According to a Bruegel report, the Brussels-based think tank is the most exposed category of “electrical machinery, equipment and its parts,” with Chinese exports to the United States being about $124.8 billion in 2023.
“Smartphones and lithium-ion batteries account for 31% and 10% of the category, respectively. The EU has hardly made smartphones, but it hopes to increase its share of global battery manufacturing,” Bruegel noted.
“Trade uncertainty is an urgent concern for exporters countries like Germany, which specializes in industries with broad global value chains. Industries in the global value chain also have a lot of domestic concerns and long-term issues such as increasing productivity and innovation, such as increasing productivity and innovation, which need to be addressed. For unacceptable governments, this is a high degree of treatment for critical governments.
(Nimish Sawant is an independent journalist in Berlin.)
publishing – May 13, 2025-6:55 IST
