Infrastructure Funding Billions Aimed, as Per Economy, With Dashboard Brake Bill - Suggestions or Recommendations Already Proposed by the Commission
The ongoing trade tariff dispute between Germany and the USA is causing significant strain on the German economy, particularly the automotive industry. The latest development sees a 15% tariff imposed on German car exports to the US, a critical market accounting for around 13% of exports for German automakers.
This tariff is costing the industry billions of euros annually and has already forced companies like Volkswagen to report a loss of about €1.3 billion in Q1 due to tariffs on vehicles manufactured in Mexico for the US market.
The automotive sector, including major players like BMW, Mercedes, and Volkswagen, is seeking relief by advocating for the EU to remove tariffs on US-made vehicles imported to Europe, promoting freer trade in both directions.
German Chancellor Friedrich Merz highlighted that avoiding a no-deal scenario prevented even harsher economic damage, especially since tariffs had previously been as high as 27% and nearly halved exports.
While the recent US-EU trade deal mitigates a potential tariff war by setting the tariff at 15% instead of the threatened 30%, the tariffs still represent a significant cost pressure on the export-driven German economy.
The German economy, as a whole, is also feeling the impact. Industrial businesses remain underutilized, and consumers are holding onto their money. Concrete orders, for example to the construction industry, are still pending. The initial growth figure for the year was revised downwards to 0.3% from 0.4%.
Private and public consumption increased, but investments in equipment and construction were lower than in the previous quarter. The German economy experienced a contraction in the second quarter of 2021, with a GDP decrease of 0.1% compared to the previous quarter.
However, there is a glimmer of hope. The planned billions in investments from the special fund for infrastructure and climate protection are crucial for a stronger recovery, but are not expected to provide noticeable impulses until next year.
The contraction is attributed by economists to the trade dispute with the USA. The federal government is expected to shift a large amount of core budget expenditure into the special fund and spend the freed-up funds quickly, thereby stimulating the economy.
In the longer term, possible recovery strategies include German automakers urging the European Union to eliminate tariffs on US vehicles to lower reciprocal trade barriers and improve cost competitiveness. Continued diplomatic efforts by EU and US politicians to resolve tariffs on critical sectors (pharmaceuticals, steel, aluminum) to further ease trade tensions are also crucial.
For 2026, the German economy is expected to have a strong growth of 1.4%. Despite the current challenges, Germany is expected to bounce back, but the ongoing trade tariff dispute remains a significant hurdle to a full economic recovery.
- Employment policies in EC countries need to address the impact of the ongoing trade tariff dispute, particularly on the automotive industry and other export-driven sectors.
- In light of the 15% tariff on German car exports to the US and its billions of euros in annual costs, it's vital to review employment policies to foster industry resilience.
- given the financial strain imposed by tariffs on sectors like automotive, manufacturing, aerospace, retail, transportation, banking-and-insurance, and oil-and-gas – industries heavily dependent on exports – employment policies should prioritize job retention and growth.
- Considering that renewable-energy and energy sectors may benefit from lowered trade barriers, employment policies should also focus on creating opportunities in these areas to maintain a diverse, future-proof economy.
- As the German economy faces immediate challenges due to the tariff dispute, policymakers should consider investments in infrastructure and climate protection to stimulate recovery and create jobs in these sectors.
- In the long term, employing diplomatic strategies to resolve tariffs on critical sectors, such as pharmaceuticals, steel, aluminum, will be crucial for a full economic recovery and fostering a sustainable, cost-competitive workforce across all sectors.
