The German government has explicitly identified Donald Trump's trade policies as the primary factor behind its economic stagnation forecast. "There is above all one reason for this, namely Donald Trump's trade policy and the effects of the trade policy on Germany," stated outgoing Economy Minister Robert Habeck when announcing the downgraded outlook.1 The impact is particularly severe because Germany's export-oriented economy makes it more vulnerable to trade disruptions than other nations.2 Recent economic surveys already show the damage accumulating, with Germany's Purchasing Managers' Index dropping to 49.7 in April from 51.3 in March, indicating contraction as businesses report that "tariff worries and uncertainty have impacted business confidence and demand."3

Despite these challenges, German officials maintain that diplomatic channels remain open. Acting Finance Minister Joerg Kukies emphasized that trust between Europe and the United States has not been broken, noting that "negotiating over tariffs is not a new scenario between the United States and Europe."4 Germany is advocating for a "zero-for-zero tariff solution" as its preferred outcome, aligning with the European Commission's position.4 However, if negotiations fail, the Bundesbank has warned that U.S. tariffs and potential retaliatory measures could push Germany's already fragile economy back into recession.5

Germany's export-oriented economic model, once the cornerstone of its prosperity, now faces unprecedented challenges. The country has not experienced significant economic growth in five years, with contractions in each of the last two consecutive years.12 This structural weakness stems from multiple factors, including increasing competition from Chinese manufacturers who have eroded Germany's traditional dominance in engineered products like industrial machinery and luxury cars.32

The manufacturing sector, Germany's traditional strength, continues to struggle with the HCOB Germany Manufacturing PMI falling to 48 in April 2025 from 48.3 in March, remaining below the crucial 50-point threshold that separates growth from contraction.4 This decline reflects both global and domestic challenges, as economists from Berenberg note that beyond tariff uncertainties, there is "widespread domestic economic weakness."5 The transformation of Germany from Europe's economic engine to its anchor has profound implications, as it has historically been the largest economy in the European Union and ranked third globally in exports.6

The United States displaced China as Germany's biggest single trading partner in 2024, continuing a trend that began with the U.S. becoming Germany's largest export destination in 2015.1 This shift in trade dynamics has taken on new significance as the Trump administration's tariffs threaten to disrupt this crucial economic relationship. The announced 25% tariffs on automotive imports will particularly impact the "EU's manufacturing core," with German automakers bearing the brunt of these measures.2

The consequences for German car manufacturers are especially severe:

• Bloomberg calculations suggest Trump's additional tariffs could eliminate approximately 25% of Porsche's and Mercedes' profits.3

• U.S. tariffs are affecting up to €67 billion of EU automotive industry exports, with the majority coming from Germany.4

• BMW, Volkswagen, and Mercedes face difficult choices between pausing shipments or absorbing significant costs.4

• Despite these challenges, there are ongoing negotiations, with both the U.S. and EU agreeing to a 90-day pause in April 2025 and suspending reciprocal tariffs during this period.5