U.S. "Reciprocal Tariffs" Threaten German and EU Economies, Escalating Global Trade War Risks

A recent research report from the German Economic Institute has sent shockwaves through the global economic community, akin to a heavy bomb dropping. The report clearly states that over the next four years, the U.S.-pushed "reciprocal tariff" measures could potentially cause Germany to suffer losses of up to €290 billion, while total losses for the EU as a whole could soar to €1.1 trillion. This forecast not only casts a thick shadow over the economic outlooks of Germany and the EU but also sharply intensifies the risks of a global trade war.

The so-called "reciprocal tariffs" in the U.S. essentially represent a strategy of "tit-for-tat" tariff adjustments based on the tariff levels imposed by bilateral trading partners on U.S.-exported products. The U.S. intends to use this approach to build protective barriers for domestic industries and force trading partners to make concessions in economic and trade negotiations. However, this unilateralist move is completely incompatible with the internationally recognized multilateral trading system, and both its legitimacy and rationality have faced widespread questioning.

From Germany’s perspective, exports occupy a critically important position in the country’s economic structure, particularly high-value-added manufacturing, which serves as the cornerstone of Germany’s economy. Industries such as automobiles, machinery and equipment, and chemical products account for a very high proportion in Germany’s export product mix to the U.S. Once U.S. "reciprocal tariffs" are implemented, these pillar industries will bear the brunt of the impact. Take the automotive industry as an example: German automobiles have long held a considerable share in the U.S. market due to their exquisite craftsmanship and advanced technology. However, if high tariffs are imposed, the cost for U.S. consumers to purchase German cars will increase significantly, inevitably leading to a sharp decline in demand. At the same time, German automakers will have to bear additional tariff costs to maintain their operations in the U.S. market, which will undoubtedly severely squeeze corporate profit margins. In the worst case, some enterprises may be forced to reduce production scales and lay off workers, triggering a chain reaction in Germany’s domestic upstream and downstream industrial chains, from component suppliers to logistics and transportation and other supporting industries, all of which will fall into difficulties.

The German Economic Institute estimates that during the period from 2025 to 2028, direct losses caused solely by "reciprocal tariffs" could cumulatively reduce Germany’s economy by approximately €200 billion, averaging an annual loss of about 1.2% of Germany’s GDP. If countermeasures that trading partners may adopt are taken into account, the total economic loss for Germany will balloon to €290 billion. Such enormous economic losses pose a severe additional burden to German manufacturing, which is already facing high operational costs, arduous energy transition, and labor shortages. Some traditional manufacturing enterprises may even face the risk of closure, and Germany’s industrial strength and international competitiveness will suffer a heavy blow.

As a region with a high degree of economic integration, the EU has close internal market ties and strong industrial chain synergy. A shock to the German economy will inevitably have a systemic impact on the entire EU economic system like a domino effect. Export-dependent member states such as France, Italy, and Spain will also face a series of chain reactions, including shrinking demand and declining employment. According to predictions by the German Economic Institute, after the full implementation of U.S. "reciprocal tariffs," the EU’s cumulative economic losses over the next four years could reach as high as €1.1 trillion. This will not only severely disrupt the EU’s internal industrial division and collaboration system but may also lead to a decline in the EU’s position in the global economic landscape, affecting Europe’s voice in formulating international economic and trade rules.

From a global trade perspective, the U.S. "reciprocal tariff" policy has created unprecedented high levels of uncertainty. It seriously violates the relevant rules of the World Trade Organization and undermines the rules-based multilateral trading system. The U.S. has long maintained a large trade surplus with the EU in service trade and other fields but deliberately ignores this fact in the calculation of "reciprocal tariffs," making its calculation methods scientifically unfounded. If this unfair and unreasonable trade policy triggers retaliatory tariff measures by various countries, a global trade war will inevitably escalate in full scale, leading to chaos in international trade order, a severe blow to the global investment environment, and enormous obstacles to the global industrial chain layouts and normal production and operation activities of multinational enterprises.

At present, although the U.S. has not yet officially implemented "reciprocal tariffs" against Germany and the EU, related discussions have already become a hot topic in political and public opinion circles. Especially against the backdrop of the 2024 U.S. election cycle, trade issues are highly likely to once again become a bargaining chip in political games. Facing such a severe situation, German chambers of commerce and manufacturing associations have jointly called on the European Commission to strengthen high-level dialogue and communication with the U.S. to do everything possible to prevent tariff policies from evolving into a new round of trade cold war. The German Economic Institute has also urged the EU to actively expand trade cooperation with other major economies such as China and ASEAN, building a more stable and diversified trade cooperation network to diversify the risk of over-reliance on the U.S. market. At the same time, it is recommended that German enterprises accelerate the pace of market diversification, take the initiative to explore new export growth points, and enhance their ability to adapt to global economic fluctuations.

The potential advancement of the U.S. "reciprocal tariff" policy has gone far beyond the scope of pure economics; it concerns the stability of the global governance order, the balanced development of industrial structures, and the future path of globalization. As the "locomotive" of the EU economy, whether Germany can maintain its footing in this international trade storm and safeguard its foundation as a manufacturing power is not only of great significance to Germany itself but will also become a key indicator of future EU economic trends, which the global economic community is closely watching.