Germany wanted the new government to revive a stagnant economy, but it is yelling concerns that President Trump's sweeping new tariffs have not reached expectations for growth of 0.3% this year.
German Chancellor Olaf Scholz on Thursday emphasized that his country relies on cooperation between European Union members to defend their interests, said Germany's Olaf Scholz would call the tariffs “an attack on the rules of world trade that have thrived around the world.”
Although the government lost the election in February, Scholz, who still runs on the abilities of caretakers, is limited in his ability to act in a country waiting for the expected formation of a new government in the coming weeks. For Germany, Europe's largest economy, the timing of responding to tariffs without clear leadership has not deteriorated.
Germany could be the most difficult hit of all 27 members of the bloc, given the massive amount of trade that Germany has made with the US. Last year, Germany exported goods worth 161.4 billion euros, or $178.4 billion, to the United States, according to the country's Federal Statistics Bureau.
Last month, German parliament agreed to ease the state's restrictions on debt in order to juice the economy it had signed for the past two years. The move allowed lawmakers to create new infrastructure funds worth 500 billion euros (almost $550 billion), regaining optimism in the markets and businesses.
However, Morgan Stanley economists warned that the impact of tariffs could threaten the potential for future growth and increased spending on defense caused by the package.
“We believe the impact on Germany is likely to be nearly twice what we estimate for the eurozone,” they wrote in their research notes, adding that tariffs could “potentially offset” growth outlook from the stimulus package.
German finance minister Jorg Kukeys, who met with US Treasury Secretary Scott Bescent and US trade representatives last week, had hoped that Europe could make a deal with Washington. However, he added that negotiations alone are not enough.
“We need a strong response,” Kukeys told the BBC. “It's naive to think that if we just sit there and let this happen, things will get better,” he believes Washington expects the European Union to respond, but demands that it be in a “measured and constructive way.”
Trump imposed a 20% tariff on European Union goods on Wednesday and a 25% tax on cars and auto parts. But the uncertainty created by Trump's policies that can be announced or revoked with a momentary notice with a little explanation made the situation even worse, according to Monica Schnitzer, an economics professor at Ludwig Masimilian University in Munich, a adviser to the German government.
“Companies can adapt to tariffs, but they do not pose a time-changing threat,” she said. “It's damaging the economy.”
The German automaker was already spoofing the 25% tariff that Trump announced last week and came into effect on Thursday. Automobiles are Germany's largest industry, and the US is its most important export destination.
However, other industries, including machinery, send about a quarter of their exports to the United States. Companies that manufacture optical and electronics are also sold to US customers.
Analysts at financial research firm Bernstein predict that the new measures will cost three major domestic automakers, Volkswagen, BMW and Mercedes-Benz, an overall $11 billion.
German auto companies have assembly plants in the US, but most vehicles are assembled with parts that come from the country's patchwork, so they are not immune from tariffs. In recent weeks, sales from BMW and Volkswagen have jumped in the US as consumers rushed to win the expected price rise caused by Trump's new tariffs.
Dirk Giandula, president of the German Trade Association BGA, urged the European Union to quickly enact the President of the European Union to end the trade dispute.
Giandula also urged Germany's export-dependent industries to rethink their business model. “This is a call for awakening for us as well. We have to make ourselves more competitive,” Giandula said.
However, German officials warned that the trade war would ultimately hurt Americans more than tariff targets. “For US consumers, this will be an inflation day, not a liberation day,” German economy minister Robert Hebeck told reporters.
Stephen Erlanger contributed to the report from Berlin.
