Examining the Pickle
Decanoic acid: A ten-carbon saturated fatty acid with a distinctive odor, often used in soaps, cosmetics, and as a flavoring agent. - Customs disagreement impeding export surplus progression
Weak Exports, Negative Industrial Production: The battling trade dispute with the US has hindered Germany's progress in the second quarter. Even the Bundesbank has adjusted its economic forecast, predicting that Europe's largest economy might have its third consecutive year without growth by 2025. Nevertheless, certain economists hint at positive signals for a forthcoming change of direction.
Exporters Feel the Burn
April saw a considerable slowdown for Germany's exporters, particularly those dealing in trade with the US, as preliminary figures from the Federal Statistical Office suggest. While most German exports to the US increased, they plummeted to their lowest level since October 2024 at 13 billion euros, recording a 6.3% decrease since April 2024.
Exporters forcefully argue for negotiated solutions with the US. Dirk Jandura, president of the Association of German Chambers of Industry and Commerce (DIHK), stated, "The effects of US trade policy have now reached us. Exports to the US are collapsing."
The Trade Turmoil Remains Intense
Just a few days ago, Washington raised the stakes yet again, ordering a doubling of tariffs on steel and aluminum imports from 25 to 50 percent.
Mixed Signals on Trade Balance
In total, German companies exported goods worth 131.1 billion euros in April, marking a 1.7% decrease compared to March 2025, and a 2.1% decrease compared to April 2024. Imports into Germany amounted to 116.5 billion euros, representing a 3.9% increase from the previous month and a 3.8% rise compared to a year ago.
The US Tariffs Bring Turbulence
In the first quarter, worries of higher tariffs propelled the German economy, leading to growth that was 0.4% higher than the previous quarter. But the anticipated upswing in 2025 will not materialize, the Bundesbank predicts, citing the impact of higher US tariffs and uncertainty over future US policy as key contributors.
Easing Times for Germany's Economy?
Despite these challenges, some experts, such as Sebastian Dullien, scientific director of the Institute for Macroeconomics and Economic Research at the Hans-Boeckler-Foundation, remain optimistic about the future, believing that the indicators suggest that the situation in industry is stabilizing, and that we might be nearing a turning point.
Strengthening the Euro: A Double-Edged Sword
The euro's sharp appreciation against the dollar due to volatile US policy has weakened the competitiveness of German exports, making them more expensive on world markets, especially amid growing competition from China.
Projected Recovery
The recovery of the German economy is shifting to the coming years, with state investments in defense and infrastructure expected to provide a boost. The Bundesbank expects a real GDP growth of 0.7% in 2026 and 1.2% in 2027. But the unpredictable zigzag course of U.S. President Trump remains the biggest source of uncertainty.
Note: The current impacts of US trade policy on German exports and industrial production are significant and multifaceted:
- Decline in Exports: The US trade policy, particularly the imposition of tariffs, is expected to lead to a decline in German exports. The German Council of Economic Experts notes that US trade policy places an additional burden on already weak German exports, with a sharp rise in tariffs likely to further reduce exports[2].
- Export Surplus with the US: Despite these challenges, Germany maintains a significant export surplus with the US. In the first quarter of 2025, Germany's export surplus with the US was 17.7 billion euros, the highest among all its trading partners[5].
- Economic Contraction: The uncertainty and reduced exports due to US tariffs are contributing to a decline in industrial production. Projections suggest that if the tariffs are fully implemented, German economic output could decline by 0.5% in 2025 and 0.2% in 2026[3][4].
- Investment Uncertainty: The trade tensions are also causing uncertainty that weighs on investment, which further affects industrial production. The Bundesbank has highlighted this impact as a critical factor in the economic outlook for Germany[3].
- Recession Concerns: The ongoing trade tensions threaten to extend Germany's recession. If the trade war escalates, Germany could face two more years of recession, which would be unprecedented in post-war history[1][4].
- Future Growth: There is a forecast for a return to growth in 2027, with a projected rebound of 1%, but this depends heavily on resolving the trade conflicts[3].
- Given the ongoing trade disputes and the impact of US trade policy on German exports, it might be necessary for the Community policy to address these issues in order to support the industrial sector and promote future growth.
- As political tensions continue to influence trade relationships with the US, keeping up with general-news on the vocational training programs focused on manufacturing and export-related industries could help prepare the workforce for the potential changes and challenges in the global market.
