Last Updated on August 5, 2025
As global trade tensions continue to rise, US tariffs are becoming a significant concern for Germany’s economic stability. The Bundesbank expects growth of 0.7% in Germany in 2026 but this could be eaten up if U.S. tariffs of 30% threatened by President Donald Trump were implemented, the central bank’s President Joachim Nagel told Reuters in an interview. With the US and Germany being crucial trading partners, the ripple effects of these policies will not only affect Germany’s GDP but also key industries such as automotive and machinery.
Understanding US Tariffs and Their Global Impact
Tariffs are a form of trade policy that places a tax on imported goods, typically to protect domestic industries. When the US imposes tariffs on foreign products, it raises the cost for businesses importing those goods, which can disrupt global supply chains. For Germany, a major exporter, US tariffs are particularly detrimental. The cost increases from tariffs could reduce the demand for German exports, especially in the automotive and machinery sectors, leading to a slowdown in economic growth. This is not just a German problem, but one that reverberates globally, as the US remains one of Germany’s largest trading partners.
The Bundesbank’s Economic Forecast for 2025
The Bundesbank’s latest economic report has raised concerns about the future growth of Germany’s economy. The 2025 forecast indicates that tariffs from the US could slow German GDP growth by as much as 0.3-0.5% in 2025. This reduction is attributed to the expected decrease in export activity and higher production costs for businesses relying on imported raw materials.
Supporting this forecast, the Bundesbank notes that sectors heavily reliant on global exports—especially the automotive industry—will be the hardest hit. Their growth projections are now significantly lower than in previous years, with export-based industries projected to experience a downturn.
Impact on Key Sectors of the German Economy
Germany’s economy is built on exports, and the automotive, manufacturing, and machinery industries are at the forefront. In 2025 and potentially 2026 , these sectors are expected to feel the brunt of US tariffs. If the tariffs for the automotive sector remain at 25% or even increase according to Trump’s latest comments, this could see a sharp decline in sales to the US market.
Manufacturers of industrial machinery are also vulnerable, as increased costs from tariffs would diminish their global competitiveness. Smaller businesses in these industries could struggle to absorb these costs, resulting in job cuts and lower wages for workers. A report by the German Industry Association estimates that tariff-induced cost increases could lead to a 2% decrease in exports to the US by 2026, with far-reaching consequences for the German workforce. And this forecast doesn’t include the latest threats.
Broader Implications for the EU and Global Trade
Germany is the EU’s largest economy, and as such, its economic struggles affect the entire region. A slowdown in German exports could mean less demand for goods and services from neighboring EU countries, thereby dampening growth in the broader Eurozone. Moreover, the EU may respond to US tariffs with retaliatory measures, further complicating global trade.
In the long run, these trade tensions could create a fragmented international trade system, with countries realigning their trade policies and seeking new alliances. For businesses, this could mean navigating a more complex global landscape, with rising costs and fewer market opportunities.