Germany Faces Mounting Economic Pressures Amid Global Trade Tensions

Against a backdrop of heightened geopolitical uncertainty and shifting international trade dynamics, Germany’s economic trajectory has become increasingly complex and challenging.

Over the past few decades, Germany benefited tremendously from global trade integration, with exports driving growth and prosperity. However, the landscape has changed significantly since the late 2000s. Trade tensions, notably between the US and China, the fallout from the pandemic, Russia’s invasion of Ukraine, and widespread adoption of protectionist measures, have all contributed to a harsher climate for international commerce. China’s meteoric rise as an export powerhouse has been underpinned by substantial state subsidies, enabling it to capture significant market share at the expense of competitors, including German manufacturers, especially in industries like automotive and machinery. Consequently, German exports to China and other key markets have suffered significantly, with the country losing considerable ground in global sales over the past five years.

Further compounding these challenges, German industry faces higher production costs—particularly for energy—which have increased far more sharply than in the US over the past decade. Modern supply chain complexities and growing dependencies on imports from China have left German firms equally exposed to risks associated with geopolitical disruption and rising costs associated with supply diversification. As a result of these combined pressures, Germany’s overall economic output contracted for a second consecutive year in 2024, and forecasts suggest only marginal growth in the near term.

An added layer of uncertainty looms with the potential for new US import tariffs. With speculation swirling around significant hikes in tariffs on goods from China, as well as broader duties on imports from Germany and other countries, the risks to export-driven economies like Germany’s are acute. Analyses suggest that such measures could shave nearly 1.5 percentage points off German economic output by 2027 and risk injecting further inflationary pressures. While a weaker euro might offer some price competitiveness, it would not offset the drag from diminished external demand and greater uncertainty. The impact, moreover, would extend beyond Germany—higher prices and reduced purchasing power would likely dampen US growth as well.

The German experience underscores that protectionism yields no winners and only erodes prosperity for all parties involved. In today’s turbulent international waters, maintaining open, rules-based trade remains vital for Germany’s economic well-being and future resilience.