Financial observation: US tariffs severely damage Germany's economic engine

It has been more than 100 days since the tariff agreement reached in Scotland on July 27 between European Commission President von der Leyen and US President Trump. According to the agreement, the United States imposes a basic tariff of 15% on most goods imported from the European Union. According to German media, criticism of the agreement within the European Union continues to be heard, especially from the business community who strongly criticize it. The US tariffs have had a serious impact on multiple economic sectors of Germany and the European Union.

The sharp decline in exports to the United States

The German magazine "International Politics" recently published an article stating that Brussels and Washington reached a non legally binding trade agreement at the end of July. According to the agreement, the United States imposes a maximum tariff of 15% on goods imported from the European Union, including automobiles and automotive parts. The EU has also pledged to invest $600 billion in the United States and import energy products worth $750 billion, but it is still unclear how the EU will specifically fulfill these commitments. In addition, the EU will cancel all tariffs on US industrial products. However, there are still differences or ambiguities in key details of the agreement, which may lead to disputes in US European trade.

An EU diplomat told Deutsche Presse-Agentur earlier this month that "the US EU trade agreement is not ideal." The strengthening of the euro makes European products more expensive for American buyers, thus weakening the competitiveness of European products in the US market and impacting European exports to the United States.

As an export-oriented country, the impact of tariffs on Germany is evident. The data released by the German Federal Statistical Office on October 30th showed that the export value in the third quarter decreased compared to the previous quarter. In August, Germany's export value decreased by 0.7% year-on-year and 0.5% month on month; Germany's exports to the United States decreased by 23.5% year-on-year, reaching the lowest level since November 2021. In September, Germany's exports to the United States rebounded after shrinking for five consecutive months, but still showed a significant downward trend year-on-year, with exports decreasing by 7.4% compared to the same period last year. In October, confidence in the German export industry continued to deteriorate. According to a survey by the Munich Ifo Economic Research Institute, the export forecast barometer for October dropped from 3.4 points in September to 2.8 points. The head of the Ifo Economic Research Institute, Walrabe, said, "The German export industry is in a difficult situation, and real recovery is far away

Dirk Yandula, President of the German Wholesale and Foreign Trade Association, said, "There is no doubt that the tariffs and trade policies of the United States are important reasons for the decline in sales." He stated that the demand for traditional German export goods such as cars, machinery, and chemicals has decreased in the United States. The new tariff policy has made the once profitable business model lose its appeal. Some retailers are gradually abandoning their US operations. For an export-oriented country like Germany, where nearly a quarter of jobs depend on exports, tariffs are undoubtedly a heavy burden.

Carsten Brzeski, head of macro research at Dutch International Group, believes that due to the continued threat of tariffs and the strengthening of the euro, Germany's exports to the United States are unlikely to rebound soon. Brzewski also stated that German exporters still face significant challenges. The pressure on exports caused by US tariffs may not fully manifest for several months, and the possibility of exports recovering as a key engine of German economic growth in the short term is very small.

The automotive, machinery, and chemical industries are under pressure

The German newspaper "Handelsblatt" reported that US tariffs have put enormous pressure on German car brands. The automotive industry was once considered the biggest beneficiary of this trade agreement. Because the tariffs imposed by the United States on European cars have been reduced from 27.5% to 15%. However, the German Association of the Automotive Industry (VDA) is not satisfied with this, as the 15% tax rate is six times higher than the previous 2.5%. VDA President Hildegard Muller believes that "the German automotive industry still faces severe challenges." A range of steel and aluminum products, as well as commercial vehicles, buses, and components, also face additional tariffs. These additional tariffs, which will take effect on November 1st, will have a heavy impact on European commercial vehicle manufacturers, "Mueller warned. In addition, European car manufacturers may also need to deal with increasingly fierce competition from the United States: as a condition for reducing tariffs, the EU must allow American cars to enter Europe duty-free. Previously, American cars were required to pay a 10% tariff.

Affected by the tariffs imposed by the United States, the profits of German automotive giants have significantly declined. According to Hong Kong's "Bus News", the German automotive industry has been hit hard, with major German car manufacturers such as Volkswagen and Mercedes Benz reporting a sharp decline in profits in the first three quarters of 2025. The Trump administration has imposed high tariffs on EU made cars, dealing a heavy blow to the German automotive industry. Despite the agreement reached between the EU and the US, the latest industry data shows that the impact of tariffs is very severe. Volkswagen stated in its financial report on October 30th that the losses caused by US tariffs this year could reach up to 5 billion euros. The profit of this automotive giant in the first nine months of this year decreased by 58% year-on-year to 5.4 billion euros. The company's sales in the North American market decreased by 11% in the first three quarters. Volkswagen Group's Chief Financial Officer and Chief Operating Officer, Antelitz, stated that the main reason for the decline in the group's operating profit is the imposition of tariffs by the United States, and it is expected that the related impact will continue.

The performance released by Porsche, a subsidiary of Volkswagen, shows a significant decline in its operating profit, with only 40 million euros in the first nine months, a significant decrease compared to the previous year's profit of 4 billion euros.

Meanwhile, Mercedes Benz announced on October 29th that its net profit for the first three quarters was 3.88 billion euros, a decrease of about 50%. The company's car sales, revenue, and profits have all declined. A report from the company stated that the high level of uncertainty caused by US tariff policies and other macroeconomic factors is the main reason.

The German Machinery Manufacturers Association (VDMA) believes that this tariff agreement completely deceives them. Because mechanical equipment not only faces a basic tariff of 15%, but the United States also imposes a 50% tariff on steel and aluminum in many products. For mechanical equipment manufacturing enterprises, in addition to facing rising sales prices, they also need to deal with cumbersome customs procedures and a large number of document requirements, such as proof of origin for processed metals. Due to tariff disputes and weak demand from industrial customers, the industry generally expects sales to decline or stagnate. Trade disputes are just one of the many worrying issues, with high energy prices, weak demand, and global oversupply of basic chemicals also being major challenges.

From January to August this year, sales in the German chemical industry decreased by 2.9%, and overseas sales also declined. The German Chemical Industry Association stated that "the decline in orders in North America is particularly evident, and the imposition of tariffs by the United States has hindered sales." In 2024, the German chemical industry's exports to the United States amounted to 10.2 billion euros, accounting for approximately 8% of its total exports. The chemical industry is cautious about the overall business prospects and expects a 2% decrease in production by 2025. At present, there is no sign of improvement in both domestic and international markets, "said the German Chemical Industry Association

The economy continues to stagnate

Against the backdrop of shrinking exports, it is not easy for the German economy to regain its growth momentum. Türkiye's Anadolu News Agency reported that although the new German government introduced a number of reform measures, the German business community still did not feel any optimism because the economy continued to stagnate.

The data released by the German Federal Statistical Office on October 30th showed that the country's GDP stagnated in the third quarter, with zero growth compared to the previous quarter, and shrank by 0.2% in the second quarter. High energy costs, weak global orders, and high tariffs in the United States are the most important factors hindering economic growth. In addition, the country is also facing a persistent chip shortage, which has affected automobile production.

Currently, the European Parliament is reviewing the above-mentioned US-EU trade agreement through standard legislative procedures. For several reasons, I am not entirely satisfied with this agreement, "said Bernd Lang, President of the International Trade Committee of the European Parliament." One of them is that since the agreement was reached, the United States has once again raised tariffs. Therefore, a clause aimed at 'maintaining the status quo of the agreement' needs to be reached, stipulating that the United States cannot impose new tariffs or take other similar measures

According to the German transport newspaper, as the chief negotiator of the European Parliament, Lange also drafted the position paper of the European Parliament on tariff legislation. Position paper proposal: temporarily not granting tariff preferences to the United States on aluminum, steel, and their products; If the import volume of US products exceeds a specific value, the automatic safeguard clause will take effect; The period of preferential treatment is limited to 18 months, etc. The European Parliament's International Trade Committee recently held its first discussion on the draft document.

International Politics magazine states that the EU must be prepared for the ongoing uncertainty in transatlantic trade relations and strengthen its geo economic deterrence. Although the EU prepared retaliatory measures against industry tariffs and 'equivalent tariffs', in order to avoid affecting US European negotiations, the EU ultimately did not implement these measures. The EU has also failed to activate an anti coercion mechanism that could have allowed it to take broader economic retaliatory measures. According to reports, in negotiations with the Trump administration, the EU's risk aversion awareness is not strong enough, and the EU should adopt more effective geo economic deterrence and defense policies.