German Manufacturing Could Shrink by up to 2.8 Percent Due to Trump Tariffs

Simulations by the ifo Institute show that a further US tariff package would especially hit German manufacturing. Should Trump impose the reciprocal tariffs announced on April 2 (including tariffs of 50 percent on EU imports) and additional product-specific tariffs at the end of the tariff pause (July 9), German manufacturing would shrink by 2.8 percent once the economy has fully adjusted. German exports to the US would fall accordingly by 38.5 percent. Exports to China would also drop by 4.7 percent.

The US tariffs would hit the automotive and pharmaceutical industries particularly hard: While the automotive industry would have to expect losses in value added of up to 6 percent, the pharmaceutical industry could even see losses of up to 9 percent. In contrast to manufacturing, value added in services and in agriculture would grow slightly, by 0.4 percent respectively, as a result of the US tariffs. “Should US President Trump actually implement his tariff announcements, the direct impact on German US exports would be significant. However, positive effects from trade diversion to other markets could partially cushion the losses,” says ifo trade expert Andreas Baur.

The calculations are based on the assumption that Trump will reintroduce the country-specific tariffs announced on April 2 after the pause in negotiations and impose the tariffs of 50 percent on EU imports. In addition, product-specific tariffs of 25 percent are assumed for pharmaceutical and electronic products as well as steel, aluminum, cars and car parts. Possible retaliatory tariffs from trading partners are not included in the calculations.