Decrease in America's allure as a trade ally observed
In recent months, German-U.S. trade relations have been undergoing a period of increased tension and uncertainty. This development can primarily be traced back to President Trump's trade policies and the broader context of Chinese imports impacting global trade dynamics.
A key factor contributing to this shift is the July 2025 U.S.-EU trade deal, which established a new baseline for transatlantic commerce. This agreement imposed a 15% tariff on most EU goods exported to the U.S., down from the 30% tariffs previously threatened by Trump but still significantly higher than the pre-Trump average of 4.8%. This tariff level has raised costs for European exporters, including German industries.
The economic impact of this trade arrangement on Germany has been substantial. German economic sentiment fell sharply in August 2025, snapping a recovery streak, largely due to concerns that the trade deal disadvantages German industries like chemicals, pharmaceuticals, mechanical engineering, metal sectors, and automotive. The trade pact is perceived as asymmetrical, exposing Germany to steeper tariffs that could compromise competitiveness and growth outlooks.
In terms of trade flows, German exports to the U.S. have experienced modest fluctuations, with some decline in exports of steel and iron products observed in early 2025. However, German import volumes have increased more rapidly than exports, indicating rising import pressures possibly linked to global trade shifts, including Chinese goods influencing U.S. and European markets.
The influx of cheaper Chinese goods is causing more and more German companies to turn to Chinese suppliers instead of their domestic ones. This shift is gradually hollowing out the German industrial base. Imports from China to Germany increased by nearly 11% to €81.4 billion in the first six months, while imports from the U.S. increased by only 2.7% to €47.4 billion in the same period.
China, with goods worth approximately €123 billion traded between China and Germany in the same period, follows closely as one of Germany's most important trading partners. The increased imports from China could potentially lead to China regaining the top position among German trading partners later this year.
The undervaluation of the yuan, the Chinese currency, is a significant factor in the increased imports from China. This undervaluation makes Chinese imports cheap and allows Chinese companies to offer their products at extremely low prices. In contrast, there is a 15% surcharge on most EU goods in the U.S., making German products more expensive.
The current trend in German-U.S. trade relations is a cause for concern for many in Germany, where economic sentiment has weakened in part due to this trade arrangement. The EU is considering countermeasures, including additional tariffs on U.S. goods, if negotiations fail to address these imbalances. The trade environment remains volatile, with tariff policies and retaliatory measures contributing to uncertainty for German exporters.
References:
[1] ING chief economist Carsten Brzeski suggests that China may be redirecting trade from the U.S. to Europe. [2] Commerzbank economist Vincent Stamer expects the new U.S. tariffs to slow down German exports to the U.S. by 20 to 25% over the next two years. [3] The U.S. is currently Germany's most important trading partner, but imports from China are increasing rapidly. [4] The Cologne Institute for Economic Research (IW) suggests that the undervaluation of the yuan is a factor in the increased imports from China. [5] The EU is considering countermeasures including additional tariffs on U.S. goods if negotiations fail to address these imbalances.
In light of the 15% tariff imposed on most EU goods exported to the United States, as a result of the July 2025 U.S.-EU trade deal, industries within Germany, such as chemicals, pharmaceuticals, mechanical engineering, metal sectors, and automotive, are facing increased costs and concerns about reduced competitiveness. The influx of cheaper Chinese goods, facilitated by the undervaluation of the yuan, is causing German companies to shift toward Chinese suppliers, potentially compromising the country's industrial base. As a response, the European Union is considering additional tariffs on U.S. goods if negotiations fail to address these imbalances, creating an environment of uncertainty for German exporters.
