Background on the Situation
The German industry has reacted with anger to President Donald Trump’s threat of imposing tariffs on European allies, demanding Denmark sell Greenland. This comes as the EU and US had recently reached a trade agreement over the summer, creating a period of relative calm for businesses.
Vulnerability to Tariffs
Germany, heavily reliant on exports, is particularly vulnerable to tariffs. Its economy has been slowly recovering from two years of decline, with global trade tensions already affecting demand for its goods such as automobiles, machinery, and chemical products.
Key Figures and Their Statements
Bertram Kwalath, president of the German Engineering Association (VDMA), stated, “If the EU caves here, it will only encourage President Trump to make the next ridiculous demand and threaten more tariffs.”
Volker Treier, an expert in foreign trade at the German Chamber of Commerce and Industry (DIHK), commented, “Controversial political goals are being unacceptably linked to economic sanctions.”
Unified EU Response Expected
Both Kwalath and Treier called for a unified response from the European Union, joining a similar statement by the German Association of the Automotive Industry (VDA) on Saturday.
This response could potentially involve the use of the “Coercion Countermeasure Instrument,” which allows the EU to retaliate against third countries that economically pressure its members to change policies.
Impact on Previous Agreements
Trump’s threat could undermine the provisional agreements he reached with the EU and the UK last year, which also target the planned tariffs for Greenland.
The VDMA and DIHK expressed doubt that the EU legislature would vote on the Washington agreement this month, which mainly involves eliminating many tariffs on US goods imported into the bloc.
Cost of Tariffs
Trump’s current tariff regime has already significantly impacted German companies, especially in the automotive industry, Europe’s largest. Between January and November 2019, Germany exported goods to the US worth over €135 billion ($157 billion), a 9% decrease from the same period the previous year, though it remains Germany’s primary export destination.
- Volkswagen estimated the tariff cost at up to €5 billion by 2025.
- Mercedes-Benz and Porsche have also been affected, along with chemical giant BASF.
Thorsten Groeger, a union leader from the German state of Lower Saxony (home to Volkswagen), expressed concern on Sunday, warning that higher tariffs could jeopardize Germany’s economic recovery amidst industrial slowdown.
“This form of US trade policy benefits no one. It harms consumers, employees, and businesses equally on both sides of the Atlantic,” Groeger stated.
Key Questions and Answers
- What is the main issue? The German industry is condemning President Trump’s “ridiculous” demands for tariffs on European allies, fearing severe economic repercussions.
- Why is Germany particularly vulnerable? Germany’s export-driven economy, which has been recovering from a two-year decline, is susceptible to tariffs that could further dampen demand for its goods.
- What is the expected EU response? There is a call for a unified and strong response from the European Union, possibly using the Coercion Countermeasure Instrument.
- How could this affect previous agreements? Trump’s threat could undermine the recent trade agreements with the EU and the UK, which aimed to eliminate tariffs on US goods imported into the bloc.
- What are the potential costs of tariffs? German companies, especially in the automotive sector, have already felt the impact of Trump’s tariffs. Volkswagen estimates a potential cost of €5 billion by 2025.
