Exports declining, Trump tariffs couldn’t have happened at a worse time for Germany

A minor increase in consumer spending did not balance a sharp drop in exports, which was mostly responsible for another downturn in Germany’s economy at the end of 2024.

The fourth-quarter output declined 0.2% from the previous three months, as first stated and generally predicted by experts. Net commerce declined 1.2%, while private consumption rose only 0.1%.

The German economy, the world’s third largest, has barely expanded since the outbreak. It contracted in both 2023 and last year, marking the first consecutive yearly contractions since the early 2000s. According to the International Monetary Fund, it is expected to expand by only 0.3% this year.

Europe’s largest economy has become the continent’s weak link, as its massive industrial sector struggles to adjust to new circumstances, Russia’s war in Ukraine upends a business model based on low-cost energy, and Chinese demand falls.

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Furthermore, Donald Trump’s return to the White House is endangering international commerce and years of underinvestment at home are coming to light.

For months, Trump has threatened to impose greater taxes on products imported into the United States. Since entering office in January, he has demonstrated his willingness to walk the walk, announcing, for example, a 25% levy on all steel and aluminium imports, which will take effect in March.

Then, last week, Trump ordered an inquiry into whether the US could impose reciprocal tariffs on imported goods, which would entail matching the taxes charged by foreign nations on American exports. On Tuesday, he announced plans to levy a 25% tariff on imported autos, computer chips, and medications as early as April.

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If foreign producers pass on the majority of the additional tariffs to their American customers, their products may become less competitive than US-made counterparts.

According to official estimates, German exporters would suffer the most because the United States is their single largest market, accounting for 10% of total German exports.

Domestic expenditure may soon get some respite after Friedrich Merz’s conservatives won elections over the weekend on a theme of economic revitalisation. He intends to create a government by Easter, leaving companies and investors hoping for change.

Recent Ifo and ZEW polls found that expectations for the next six months increased more than predicted, even as assessments of existing conditions remained disappointing.

Quick clarity on who would lead Germany’s economy with Merz will also help persuade people to spend.