Trump's tariffs could cost Germany up to 137 billion Euros

A return of Trump to the White House would be a economic disaster for Europe, especially Germany, which is dependent on exports to the US. Germany would be heavily affected by the threatened tariffs from Trump, says Samina Sultan, expert at the Institute of German Economy (IW).

ntv.de: Will Trump drag the EU and Germany into a trade war if he returns to the White House?

Dr. Samina Sultan: Trump's first term is a blueprint for what we can expect in the second term. Trump criticized the trade balance deficits with some European countries, including Germany, back then. Trump sees trade balance deficits as the result of unfair practices. Therefore, I expect a worsening of the trade conflict between the EU and the US in a possible second term. Trump has already announced that he would introduce a universal tariff of 10 percent on all imports - except those from China. This affects European and German products as well. However, I expect the real trade war to be between the US and China.

Trump's threats, aren't they supposed to be greater towards China?

Exactly. Specifically, tariffs on Chinese imports would be raised to 60 percent instead of the current average of 20 percent. We simulated the effects of this in a study at the IW. We also simulated the second step, assuming that China would raise its tariffs on US imports by 40 percentage points.

Given that the German economy is closely linked to the Chinese, which is more damaging for Germany: Trump's planned tariffs against China and possible countermeasures from Beijing – or Trump's import restrictions for products from the EU?

The difference for Germany is not significant. Germany would be affected in both scenarios: by the introduction of US tariffs as well as possible Chinese countermeasures. Germany is very export-oriented, the US is currently our most important trading partner, and China is also very significant. We calculated this in the study and came up with a total economic damage for Germany - over the four years of a second Trump term - of between 120 and 150 billion US dollars, or 110 to 137 billion Euros. The 150 billion dollars refer to the scenario in which China imposes counter-tariffs on the US. Other effects would be, for example, an increase in the unemployment rate of almost half a percentage point.

Do Trump's threats make any economic sense at all?

The starting point for Trump's threats is the US trade balance deficit mentioned at the beginning. This means that the US imports more than it exports. Trump views trade as a zero-sum game: if one side wins, the other side loses. This is far removed from economic logic. Trade is usually a win-win situation for both sides. Trump's view of trade is therefore skewed. He would harm the US and the American population with the tariffs. The EU and its member states would be harmed more, as the US is a large market that consumes a lot itself. Therefore, the US is not as export-dependent as we are.

How can the EU counter Trump?

The EU can only show Trump resistance if it acts united against him. This is already evident with Orban's visit to the US with Trump. We also don't know what will happen after the French election and how the new government in Paris will approach Trump. As long as the President of the USA is still Biden, it would be best to deepen the relationship as much as possible. There is, for example, the Trade and Technology Council, where at least for now there is still a dialogue forum between the USA and Europe for trade issues. This format should be secured as much as possible, so that it cannot be easily eliminated by Trump.

Are there possibilities for trade agreements that could help the EU?

There is the so-called Critical Materials Minerals Agreement, which is still being negotiated between the EU and the USA. This concerns strengthening the supply chains for critical raw materials for the production of electric car batteries between the EU and the USA. With an agreement, European electric car companies would also gain access to the incentives of the Inflation Reduction Act and could therefore compete on the US market under the same conditions as domestic companies or those from third countries, such as Japan. The Europeans must also build up their worldwide trading relationships, for example through an agreement with the Mercosur countries (Brazil, Bolivia, Argentina, Uruguay and Paraguay), Indonesia or India. This would reduce dependence on the USA. Finally, we should not shy away from threatening Trump with credible countermeasures.

During Trump's last term, the EU imposed tariffs on various products, including peanut butter, jeans, Bourbon Whiskey, orange juice and Harley-Davidson motorcycles. Why?

Harley-Davidson, for example, was hit with a 50% import tariff – as a countermeasure to the US import tariffs on European steel and aluminum. In total, the EU selected symbolically important products that were produced in states where the Republican Party had a governor. In this way, an attempt was made to provoke the Republican Party against Trump and to pressure him into negotiating with the EU.

Did that have any effect?

It's hard to assess, as Biden became President before the second wave of EU counter-tariffs took effect. Having the EU still have Trump in its pocket may have contributed to the fact that under Biden, the mutual tariffs were suspended.

Which tariffs could the EU particularly harm the US economy with in the event of a possible second term for Trump?

Significant exports from the USA to Europe include above all transport goods, chemical products or also computers and electronic products. Tariffs on these goods would cause the greatest economic damage to the USA. But they would also severely harm us, as the goods would become more expensive. Therefore, I believe that it would again come to targeted tariffs on symbolically important goods, at least as a first step. In this way, the Europeans would not cut too deep into their own flesh.

If Donald Trump returns to the White House, Samina Sultan, an expert at the Institute of German Economy (IW), predicts a negative impact on Germany's business relationships with the United States of America due to potential trade conflicts.
Dr. Samina Sultan suggests that Trump's criticism of trade balance deficits with Europe, including Germany, during his first term serves as a blueprint for his economic policy in a potential second term.
The EU, including Germany, could face significant economic damage from Trump's proposed import tariffs, estimated to be between 120 and 150 billion US dollars or 110 to 137 billion Euros, over the course of a second Trump term.
The European Union can counter Trump's economic threats by acting united against him and maintaining dialogue in forums like the Trade and Technology Council, which allows for discussions on trade issues between the USA and Europe.
To reduce dependence on the USA, the EU could pursue trade agreements with countries such as Mercosur, Indonesia, and India, and consider threatening Trump with credible countermeasures to put pressure on him for negotiations.