By Okafor Joseph Afam
November 7, 2024

Donald Trump’s election as U.S. President could mark yet another major blow for Germany’s already struggling economy.

Germany narrowly avoided a technical recession in the third quarter, with preliminary data showing its gross domestic product (GDP) grew by a mere 0.2% after a contraction of 0.3% in the previous quarter. However, in October, Germany’s economy ministry revised its forecast, now predicting the economy will contract rather than grow this year.

The country faces a troubling economic landscape, with key indicators suggesting weak economic health. Germany’s composite Purchasing Managers’ Index (PMI), although it rose slightly in October, remained in contraction territory, highlighting persistent economic struggles.

Trump’s election could exacerbate these challenges.

“Donald Trump’s likely election victory marks the beginning of the most difficult economic moment in the history of the Federal Republic of Germany,” stated Moritz Schularick, president of the Kiel Institute for the World Economy. He warned that Trump’s policies could heighten the structural crisis at home and present serious foreign trade and security policy challenges.

Reliance on Exports

Germany’s economy is heavily dependent on exports, and Trump’s proposed tariffs and trade restrictions could deal a heavy blow. The U.S. has grown to be Germany’s largest trading partner, surpassing China in the first half of this year, with 9.9% of German exports going to the U.S. in 2023, according to Destatis, Germany’s federal statistics office.

Previously, Trump suggested he could impose tariffs of 10% to 20% on nearly all imports, regardless of origin. German exporters could be hit hard by these potential tariffs, according to the ifo Institute for Economic Research, which warned that Trump’s policies could cause EUR 33 billion in economic losses for Germany alone, with exports to the U.S. potentially dropping by 15%.

Autos and chemicals, two of Germany’s primary industries, are among the most vulnerable to these proposed tariffs, as noted by Morningstar DBRS. Germany may need to prepare for potential impacts on these core sectors.

Lisandra Flach, director of the ifo Center for International Economics, advised that Germany and the EU must prepare to respond to the U.S.’s possible shift away from global trade cooperation. “Germany and the EU must now strengthen their position through measures of their own, including deeper EU integration and credible retaliatory measures against the U.S.,” she noted.

German Political Reaction

Trump’s election win coincides with political instability in Germany, as Chancellor Olaf Scholz dismissed Finance Minister Christian Lindner, fracturing the ruling coalition.

Nonetheless, Scholz and Lindner both extended congratulatory messages to Trump. Scholz promised that Germany would continue to be a “reliable” partner.

Before his dismissal, Lindner had expressed a willingness to engage with Trump, suggesting that Europe should reach out to the Republican leader. However, he warned that if Trump followed through on his aggressive trade policies, the EU might be forced to consider retaliatory measures.

As Trump begins his term, Germany faces significant economic and political hurdles. Trump’s policies could further impact Germany’s fragile economy, pushing Berlin and the EU to strengthen their own economic defenses in an uncertain global landscape.