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The German economy is concerned about the US election and Trump’s restrictive trade policy. One measure in particular would have drastic consequences. How can companies prepare for this?
Washington, DC – As President of the USA, Donald Trump has made national egoism great with his “Make America great again” campaign. In the competition between American companies and their competitors from Chinabut also from Europe, he has resorted to restrictive measures, such as tariffs on imports of steel and aluminium.
Ahead of the 2024 US election and a possible second presidency for the far-right, concerns about new trade conflicts are growing. The export-oriented German economy in particular, which invests heavily in the USA, is therefore eagerly awaiting the outcome of the race between the Republican and the Democrat Kamala Harris.
Trump’s demand before US election could cost German economy up to 150 billion euros
With his economic policy demands before the presidential election, Donald Trump is relying on the one hand on core demands of the Republicans, such as tax cuts and the removal of regulations. However, the key point is what is entitled “protecting American workers and farmers from unfair trade” in the election manifesto, which is just 16 pages long: basic tariffs on goods manufactured abroad and tax cuts on US goods. Tariffs on imports should be at least ten percent.
According to an analysis by the German Mechanical and Plant Engineering Association (VDMA), Trump’s tariffs pose the greatest risk potential for German companies doing business in the USA. The German Economic Institute warns of losses of up to 150 billion euros for German companies.
German economy warns of consequences of Trump’s economic policy: Tariffs would be “a bitter setback”
The German Chamber of Industry and Commerce (DIHK) is also critical of Trump’s demand. The basic tariff “would make German export goods to the USA more expensive and further dampen foreign trade,” said DIHK foreign trade chief Volker Treier. IPPEN.MEDIAThe USA is the most important destination for German goods. “For the export-oriented German economy, which depends on open trade, new tariffs would be a severe setback.”
Before the US election, Donald Trump calls for tariffs on all goods produced abroad © Alex Brandon/dpa
The expert explained that German car and machine manufacturers, pharmaceutical companies and other vehicles, for which the USA is the most important export market, would be particularly affected by Trump’s tariffs. Companies with strong competitors would be particularly hard hit by the tariffs because “their products would become relatively more expensive and less competitive.” Even without strong competition, the costs would be higher. Passing the costs on to customers would, according to Treier, fuel inflation in the USA. Companies would have to prepare for falling demand or lower margins.
DIHK foreign trade chief Treier warns of consequences of Trump policy for German growth
The DIHK economist is also critical of Trump’s other measures against China. “The general import tariff of 60 percent planned against China carries the risk that the trade conflict between the two superpowers will escalate further. German companies, for which both markets are the most important trading partners, could find themselves in the crossfire,” explained Treier.
The DIHK foreign trade chief warns of the consequences of Trump’s demand for the entire German economy: “Stagnating economic growth in Germany would be hit another hard point,” Treier explained. IPPEN.MEDIA. It is particularly important to prevent a trade dispute for an “internationally intertwined economy like Germany.” The federal government and the EU Commission must work “regardless of the election result” to ensure “that German companies have good access to the US market.”
Relocation of production: How the German economy could prepare for Trump presidency
Treier advises German companies that might be affected by the tariffs introduced by Trump after the US election to “enter into local partnerships and, if necessary, consider local production without neglecting Germany as a location.” In addition, “developing new business opportunities and diversifying sales markets is always appropriate in times of major geopolitical fluctuations.”
The head of foreign trade at the DIHK recommends that companies without the possibility of setting up production in the USA seek exchanges with local business partners. Sharing costs is one way of maintaining business relationships when margins are low. “Companies are also well advised to review their supply chains and target alternative sales markets,” explained Treier.
Harris’s demand before US election also viewed critically by German companies
The analysis by the German Association of Mechanical and Plant Engineering (VDMA) expects Kamala Harris to continue the trade policy of the Biden administration, of which Harris is also a member as the current vice president. But German companies are also critical of one of the Democrat’s demands: the plans to adjust the corporate tax rate. Harris intends to increase taxes from the current 21 to 28 percent.
That “would give the US budget more room for investment, but could also slow the economy,” said Treier. “German companies could be faced with a drop in orders. On the other hand, relocation to the US would become less attractive and Germany’s competitiveness would be strengthened.” Conversely, a tax cut could boost US growth and thus also bring new orders for German companies.
