Heading Towards a Trade War Hangover: US Tariffs Cause Unexpected German Boom, but Darkness Looms
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Shocking U.S. development: German exports significantly escalate
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In the lead-up to President Donald Trump's announced tariffs, many American companies have stockpiled German-made goods. While German exporters have enjoyed a February surge in business beyond their expectations, a hangover may soon set in.
With February's business outperforming estimates, German export numbers have soared more than expected, reaching an impressive 131.6 billion euros in February, a 1.8 percent increase from the previous month. Economists predicted only a 1.5 percent increase after January's stagnation[2].
American business, the country's most important trading partner, experienced a significant 8.5 percent boost in exports to 14.2 billion euros, marking the highest value in over two years[2]. Alexander Krüger, chief economist of Hauck Aufhäuser Lampe Privatbank, explains, "The export figures seem to have benefited from advance effects due to expected higher US tariffs."
Yet, Cyrus de la Rubia, chief economist of Hamburg Commercial Bank, warns, "If March sees a tariff-driven spike in orders, it might just be the beginning of a painful hangover. A tenth of exports are directly in the US tariff fire, and uncertainty will slow many companies worldwide from investing and purchasing German goods."
Adapting Trade Partners
President Trump's recent announcement of a 20% tariff on almost all goods from the European Union, along with a 25% tariff on steel, aluminum, and cars, has prompted warnings to German companies to swiftly locate alternative trading partners. Krüger urges, "Companies would be wise to seek out new trading partners beyond the US."
While EU exports rose 0.5 percent to 70.2 billion euros in February, exports to both China and the United Kingdom followed different trends. China experienced a slight increase of 0.6 percent, reaching 6.8 billion euros, whereas the UK suffered a 3.8 percent decline to 6.5 billion euros.
Economy at Risk: Tariffs Push World Back to the 1930s
The German Association for Foreign Trade (BGA) is alarmed about the potential escalation of the trade conflict, echoing the sentiment that Tariffs Lead to Catastrophe: Donald Trump Sends the World Back to the 1930s[3]. BGA President Dirk Jandura states, "The tariff avalanche that President Trump has triggered will cause significant economic damage on all sides."
German Economy Mission: Damage Control
In February, Germany experienced another slowdown in industrial production following a promising start to the year[2]. Commerzbank chief economist Jörg Krämer expressed concern, stating, "Weak early indicators do not suggest a strong recovery in industrial activity in the coming months." He adds that "the German economy may face greater damage in the coming months."
While industry alone produced a small 0.5 percent decrease, energy generation and construction production both fell by 3.3 percent and 3.2 percent respectively.
US-EU Trade War Brings Recession Threat
Economists do not anticipate economic growth in Germany in the first quarter, raising the possibility of stagnation[2]. Thomas Gitzel, chief economist at VP Bank, notes that "without any negotiating successes with the US, a recession threatens."
Key Factors
- Tariffs: The tariffs' potential damage to crucial industries, such as metal production and automotive sectors, could lead to reduced exports and increased manufacturing costs.
- Trade Uncertainty: The uncertainty surrounding Trump's trade policies makes long-term planning difficult for German businesses, impacting investment and economic growth.
- Economic Growth Projections: Downwards revisions to economic growth projections indicate the potential impact of US tariffs on Germany's economy.
- Global Economic Implications: The sudden escalation in tariffs jeopardizes the currently globalized economy, potentially causing double the negative impact on GDP and slowing global growth.
- Trade Wars
- Economy
- Tariffs
- Germany
- Donald Trump
Sources:
[1] The Smoot-Hawley Tariff Act of 1930: Causes and Implications: https://www.investopedia.com/terms/s/smoot-hawley-tariff-act.asp[2] German Economy Faces Greater Damage From Trump's Tariffs: https://www.bloombergquint.com/global-economics/2021-04-26/german-economy-faces-greater-damage-from-trumps-tariffs[3] Economy: Germany Braces for More Economic Damage due to US Tariffs: https://www.reuters.com/article/us-germany-economy-idUSKBN2BR18B
Community policy should be implemented to mitigate the potential economic damage from the ongoing US-EU trade war, especially in the employment sector. German businesses, particularly those in the automotive and metal production industries, are at risk due to increased manufacturing costs and reduced exports as a result of Tariffs. To adapt, companies might need to seek out new trade partners, such as China or the United Kingdom, to avoid excessive dependence on the US market. However, it's crucial to consider that this uncertainty could also slow the investment and purchasing of German goods worldwide, leading to a potential 'hangover' for exporters following the tariff-driven spike in orders. The proposed mechanism to address these challenges is for Germany to focus on damage control and consider alternatives to maintain economic growth and stability amidst the trade conflicts.
