Germany is at a critical juncture. With voters heading to the polls, the country’s stagnant economy and promises to revive it will take center stage. However, the political parties face an even bigger challenge: the looming threat of Donald Trump’s tariffs. This economic difficulty presents high stakes for the future of the country.

The Stakes of Economic Stagnation

The next election could hinge on how well the leading political parties manage to stimulate Germany’s economy. Carsten Brzeski, a senior economist at ING, warned that economic stagnation could be a key factor in determining the outcome of the election. For Germany, the stakes are incredibly high.

Germany has been struggling to grow since the pandemic. It experienced contractions in both 2023 and 2024, marking the first consecutive annual declines since the early 2000s. The International Monetary Fund (IMF) has projected a weak 0.3% growth for this year, indicating that Germany’s economic recovery will be slow and painful.

Once a leading global economic powerhouse, Germany thrived between 2005 and 2019. During that time, German exports soared, powered by cheap Russian gas, a booming Chinese market, and smooth global trade. However, those favorable conditions have shifted dramatically. Now, the country faces new challenges, including Trump’s potential return to power and the economic disruptions that may follow.

The Impact of Donald Trump’s Tariffs on Germany

Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, pointed out that the global shift away from free trade could hurt Germany’s economy, particularly its export-driven sectors. The country’s exports account for more than 43% of its GDP, which is the highest share among major economies. A significant portion of this trade is directed to the United States, Germany’s largest market.

Trump’s potential tariffs, including a 25% tariff on steel and aluminum imports set to take effect in March, could make German goods more expensive and less competitive in the U.S. This move threatens Germany’s vital export sector, particularly its automobile industry.

Germany is known for exporting cars, machinery, and chemical products. But over the years, changes in global markets have created new risks. The rise of China’s domestic carmakers, such as BYD and Xpeng, has diminished Germany’s dominance in the automobile industry. Additionally, the rapid growth of electric vehicles (EVs) has disrupted traditional automakers like BMW, Mercedes, and Audi.

Challenges in the German Auto Industry

German car manufacturers have been slow to transition to electric vehicles. Many were reluctant to invest heavily in EVs for fear of undermining their established positions in traditional internal combustion engine vehicles. Meanwhile, companies like Tesla and Chinese automakers have successfully scaled up production, leaving German brands behind.

Germany’s energy-intensive industries also face challenges. Since Russia’s invasion of Ukraine in 2022, Germany has been forced to rely on more expensive energy imports. As a result, many industrial companies have reduced production or shut down altogether. The steep rise in energy costs, along with high taxes and regulations, has further burdened industries and businesses in the country.

Lars Kroemer, chief economist at Gesamtmetall, a trade group for employers in the metal and electrical engineering industries, summed up the situation, saying, “We are in the midst of deindustrialization.”

Rising Energy Costs and Economic Regulations

Germany’s economic struggles are also exacerbated by its strict rules on government borrowing, known as the “debt brake.” These restrictions have limited the ability to invest in vital infrastructure projects, particularly in the digital and energy sectors. Achim Wambach, president of the Leibniz Centre for European Economic Research (ZEW), pointed out that Germany is falling behind in digitalizing its economy.

“We haven’t digitized yet. Our bureaucratic burden is higher than in other countries,” Wambach said, highlighting the urgency of addressing these issues.

The Global Trade Network and Its Implications

The threat of tariffs extends beyond just steel and aluminum. Trump has announced plans to impose tariffs on other products, including cars, semiconductor chips, and pharmaceuticals. These tariffs would further complicate the global trade network, which is vital for Germany’s export-driven economy.

Michael Böhmer, chief economist at Prognos, emphasized that tariffs on foreign goods, even if they don’t directly target Germany, could still affect the country’s economy. This is because global trade is a complex network. If one country faces a tariff, it can create ripples throughout the global economy, which ultimately impacts Germany.

A Call for Economic Reform

Despite these challenges, experts like Böhmer warn that Germany’s future growth depends on more than just surviving Trump’s tariffs. To remain a global economic leader, Germany must transition from traditional industries like automotive manufacturing and steel production to emerging sectors such as artificial intelligence (AI) and green technology.

“If Germany fails to shift toward a future-oriented economy, it will no longer be the world’s third-largest economy,” Böhmer warned. This shift is necessary not just for economic recovery but also to ensure long-term prosperity.

As Germany approaches a critical moment, the upcoming election could determine whether the country can navigate these economic challenges successfully. Economic reform, strategic investments in new industries, and overcoming the threats posed by global trade shifts are key to securing Germany’s future.

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