Germany was Europe’s economic growth engine. Trade wars could drive it to recession.


An worker in protective clothing leads a tour at steel producer Salzgitter AG in Salzgitter, Germany, on March 5. (Markus Schreiber/AP)

August 7

BERLIN — Germany’s industrial output dropped 1.5 percent in June and is now down 5.2 percent year-on-year, prompting warnings from economists that President Trump’s trade war with China and threatened tariffs on car imports from Germany could potentially push the country toward a recession.

The figures released on Wednesday by Germany’s statistical office are threatening the country’s status as Europe’s most reliable economic engine and are “devastating, with no silver lining,” said, Carsten Brzeski, chief economist for Germany at ING Group, a Dutch financial services firm.

Germany may see a contraction “in the second quarter, unless exports bring an unexpected surprise,” Brzeski said.

Export figures are due to be released at the end of this week, and an update on Germany’s gross domestic product is scheduled for next week, but experts said they were working under the assumption of bad news.

Brzeski said the slowdown was the result of factors including the absence of domestic economic reforms in Germany and a weaker-performing Eurozone economy overall.

Some stakeholders, including the Federation of German Industries, also singled out President Trump’s policies as being detrimental to growth. After Trump said last week that he would impose a 10 percent tariff on an additional $300 billion of Chinese goods starting Sept. 1, the federation cautioned that the trade war was “not only hurting both [China and the United States] but also the entire world economy.”

“The situation could worsen starting in fall due to the escalating trade and currency disputes,” the federation’s chief executive, Joachim Lang, said in a statement to The Washington Post.

Such warnings have gained a new urgency amid worsening trade figures, but they aren’t new.

More than a year ago, German economist Gustav Horn similarly cautioned that “President Trump’s flirtation with protectionism is sending out shock waves.” Germany’s Macroeconomic Policy Institute blamed Trump for a growing risk of Germany’s heading toward a recession.

One month after that warning, Trump imposed tariffs on steel and aluminum imported from the European Union, which retaliated by imposing countertariffs on American goods, including motorcycles and whiskey.

Those tariffs, however, appear to have had only a marginal impact on Germany — instead, it’s the Trump administration’s trade war with China that is on many German economists’ minds.

The United States and China are Germany’s biggest and third-biggest export markets, respectively, and a weakening economic outlook in China is increasingly affecting German economic performance. Meanwhile, analysts are worried that the escalating trade war could also result in a slowdown of the economy in the United States, which would have an even stronger ripple effect in Germany.

Last week, U.S. Federal Reserve Chair Jerome H. Powell said Trump’s trade policies were weakening business investment.

“Almost two thirds of [Germany’s] exports to go to countries outside of the euro zone,” said Brzeski, who also attributed Germany’s vulnerability on “its focus on manufacturing goods and cars.”

Even though Trump has not followed through on his threatened 20 percent tariffs on German cars to stop them from “flooding” U.S. streets, the country’s automobile industry is already feeling the impact of the mere possibility of tariffs, Brzeski said. Amid uncertainty over threatened American measures, many automotive corporations have put investment decisions on hold.

If the tariffs were to be imposed, Germany’s gross domestic product could take a hit that would amount to billions of dollars in losses — or nearly 0.2 percent of GDP, according to some estimates.

Even before Trump took office, German industry — and car manufacturers, in particular — were confronted with a number of self-inflicted challenges.

An emissions scandal tarnished the German auto industry’s reputation domestically and abroad and German carmakers lagged far behind than their foreign competitors in adopting hybrid or electric vehicles.

Read more:

Trump’s new tariffs take aim at heart of the U.S. economy: Consumers

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Devi Prasad

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