Germany is bracing for economic challenges stemming from the tariff policy of the United States, according to KfW Research. The organization warns that these tariffs could lead to significant economic adjustment costs and a diminished long-term growth outlook if they result in de-globalization and a reorientation of international trade. KfW Research suggests that U.S. involvement in international trade will decline if these tariffs persist.
Chief Economist at KfW, Dr. Dirk Schumacher, stated, “It’s hard to put the uncertainty genie back into the bottle.” He emphasized that countries might reassess their economic ties with the U.S. in critical sectors, potentially impacting the U.S. economy adversely.
As countries interested in rules-based trade grapple with these challenges, Dr. Schumacher noted, “There is no question that fair and modern rules are necessary for a global trade and in everyone’s interest.” He mentioned that dependable rules would aid in diversifying the European Union's trade relationships, which is seen as a beneficial step for Europe and Germany to enhance their attractiveness in global financial markets.
KfW Research maintains its forecast of -0.2% growth for Germany in 2025 and +0.3% for 2026, with Schumacher highlighting the fiscal stimulus from the infrastructure package passed by the Bundestag in March to offset losses from U.S. protectionist policies.
Price hikes triggered by tariffs could result in a corresponding drop in German exports, with potential GDP declines of up to 0.3% in the short term. Over time, U.S. consumers are likely to favor domestic products more, although uncertainties remain about whether these tariffs will persist under future administrations, possibly affecting efforts to bring industrial production back to the U.S.
The research also indicates that ongoing uncertainty over U.S. trade policy will likely cause businesses and consumers alike to delay investment and spending, adding to already low global investment activity. This could hinder global potential growth. Strong market reactions and yet-to-be-uncovered financial system vulnerabilities pose further downside risks.
KfW Research’s position paper, “Managing the transition, strengthening growth,” explores Germany's economic standing and future-proofing strategies, with recommendations across five policy areas. The paper can be downloaded from KfW's website.