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IW: Trump's reelection could push Germany into a long recession

IW: Trump's reelection could push Germany into a long recession

Donald Trump wants to “Make America Great Again.” This could also come at Germany's expense.

  • The German Economic Institute (IW) believes that the re-election of Donald Trump as President of the United States could have serious consequences for the economy and prosperity of Germany.
  • The tariffs announced by Trump could cost the German economy more than 120 billion euros and 1.2 percentage points of economic growth.
  • This is more than Germany's current growth potential. Germany is threatened with prolonged recession. IW experts recommend countermeasures.

The re-election of Donald Trump as US president could be costly for the German economy and lead to noticeable losses in prosperity. This is the result of calculations conducted by the German Cologne Institute of Economics (IW). If re-elected, the former US president threatened to impose tariffs of 60% or more on Chinese products in addition to fixed tariffs of 10% on all goods imported into the United States. Over four years, this could mean a loss of more than 120 billion euros for the German economy. Write IW economists.

The researchers took into account the direct consequences of tariffs on products from Germany and the indirect consequences for German companies if the trade conflict with China intensifies. In the second scenario, they therefore calculated the costs if China responded by increasing tariffs on US imports.

Then the compensation will also increase by billions for Germany, the employer-related company IW wrote. The trade conflict would weaken global trade and exports and private investment in Germany would decline. This would hurt Germany and the European Union more than the United States.

Even in a moderate scenario—in which China does not retaliate with tariffs of its own—Germany's GDP would decline by 1.2% in 2028. And since Germany's growth potential is currently viewed by economists as barely exceeding 1%, Trump's re-election It will have the potential to push Germany into a long-term recession.

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Trump's re-election would also deal another blow to the World Trade Organization, IW writes. It is clear that the tariff increase announced by Trump violates international trade rules. The European Union's relations with the United States are also likely to be affected. First, old trade disputes that have been largely resolved by the current US administration could erupt again, for example regarding steel and aluminium. Trump could also undo cooperative measures taken by the Biden administration that weaken the protectionist elements of the US IRA for EU exporters.

As a result, IW experts recommend using the time until another potential Trump presidency to enter into agreements with the United States on steel and critical raw materials. Threatening countermeasures can also help in emergency situations. The EU also needs new free trade agreements with other countries and regions such as Australia, the Mercosur countries in South America, Indonesia, and India. The US elections are coming in November.

Note on road: IW simulated the effects of US tariff increases using a global economic model from Oxford Economics. Two scenarios were analyzed: The first scenario assumes an increase in US tariffs on all imports from trading partners to ten percent and an increase to 60 percent of the average US tariffs on Chinese imports. The second scenario assumes a similar increase as Scenario 1 and also calculates a 40 percentage point increase in Chinese tariffs on US imports.

With materials from the Environmental Protection Agency.

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