German Finance Minister Warns of the Scars of Tariffs: The Global Economic Quagmire and Ways Out Under the US-EU Trade War

On July 16, 2025, German Finance Minister Christian Lindner, in a joint press conference with French Economy Minister Bruno Le Maire in Berlin, issued a strong warning: The U.S. policy of imposing a 30% tariff on EU goods would lead to "the rupture of global industrial chains and an escalating spiral of economic recession." This "beggar-thy-neighbor" trade war had no winners, and only through negotiations to end the dispute could systemic risks be avoided. Behind this statement was the fact that the German economy was facing its most severe external shock since World War II, while the U.S. economy was also mired in a growth stagnation due to tariff backlash.

I. The German Economy: From an Export Engine to the Brink of Recession, Showing Its Vulnerability

As the economic locomotive of the EU, Germany's trade dependence on the U.S. far exceeds that of other European countries. In 2024, the bilateral trade volume between Germany and the U.S. reached 252.8 billion euros, with German exports to the U.S. accounting for nearly 10% of its total exports. The U.S. regained its position as Germany's largest trading partner after many years. However, the Trump administration's plan to impose a 30% tariff on EU goods starting from August 1 was pushing this deeply intertwined economic relationship to the edge of a cliff.

According to a report by the German Institute for Macroeconomic Policy, if the tariff measures were implemented, Germany's economic growth in 2025 would basically stagnate, and its growth rate in 2026 would be suppressed to 1.2%, further down from the previous forecast of 1.5%. The plight of the automotive industry was particularly typical. As a pillar industry of Germany, 13.1% of its new car exports were sold to the U.S. in 2024. For high-end brands like Porsche, which had no production plants in the U.S., 30% - 40% of their vehicles had to be exported from Germany. The tariffs would directly devour their profit margins. Hildegard Müller, President of the German Association of the Automotive Industry, warned, "The U.S. actions are not 'America First' but 'America Isolation.' They will force automakers to relocate their production lines, triggering a wave of unemployment in Germany."

Core industries such as machinery manufacturing, chemicals, and pharmaceuticals also faced severe challenges. A survey by the Association of German Chambers of Industry and Commerce showed that if the tariffs persisted, German machinery manufacturing exports could decline by 18%, and chemical industry orders could decrease by 15%. More alarmingly, the Deutsche Bundesbank predicted that if trade tensions continued to escalate, the German economy could face a technical recession lasting for two years.

II. The U.S. Economy: From Consumption-Driven Growth to an Inflation Trap, Self-Inflicting Harm

Lindner emphasized that the threat of the U.S. tariff policy to the U.S. economy was "no less than that to the European economy." Model simulations by the Yale Budget Lab corroborated this judgment: If other countries did not retaliate, U.S. personal consumption expenditures (PCE) would rise by 1.7% in the short term, and GDP growth in 2025 would decline by 0.6 percentage points; if retaliation occurred, the PCE increase would expand to 2.1%, and GDP growth would decline by 1 percentage point. Goldman Sachs even raised its forecast of the probability of a U.S. recession in the next 12 months from 20% to 35%, stating bluntly that "tariff shocks have replaced inflation as the biggest risk source."

The plight of U.S. consumers was becoming apparent. World Trade Organization data showed that in the second quarter of 2025, against the backdrop of a 3.6% surge in tariff expectations, U.S. imports grew by only 1%, a sharp decline from 25% in the first quarter. According to calculations by Canada's Financial Post, under the framework of the USMCA, the U.S. imposition of a 25% tariff on imported cars would lead to an average price increase of $12,000 per vehicle, directly squeezing the consumption capacity of the middle class. Myron Brilliant, Senior Vice President of the U.S. Chamber of Commerce, said bluntly, "Imposing tariffs will hurt, not help, the U.S. automotive industry and endanger millions of jobs."

At the corporate level, U.S. manufacturers were caught in a "dilemma" due to rising tariff costs: If they did not raise prices, their profits would be eroded; if they did raise prices, their market share would be taken over by low-cost regions such as Southeast Asia and Mexico. A survey by the Boston Consulting Group showed that 63% of U.S. manufacturers planned to relocate some of their production lines, with 38% choosing Mexico and 25% choosing Southeast Asia.

III. Ways Out: From "An Eye for an Eye" to "Rule Reconstruction," a Rational Choice

Faced with systemic risks, Germany advocated a dual-track strategy of "negotiation first, countermeasures as a backup." Lindner emphasized that Europe hoped to reach a fair agreement with the U.S., but at the same time, Europe must be prepared to take decisive countermeasures to protect European businesses and jobs. The EU had drawn up a tariff list targeting U.S. goods worth 21 billion euros, including iconic products such as Boeing aircraft, U.S. cars, and Kentucky bourbon. If negotiations broke down, the implementation date could be brought forward.

A more crucial move was rule reconstruction. Germany was pushing for WTO reform, demanding restrictions on members' abuse of the "national security" exception clause and the establishment of a joint response mechanism for trade emergencies. European Commission President Ursula von der Leyen announced that Europe was expanding its trade agreement network with 76 countries, including Mercosur, Mexico, and Switzerland, and was striving to finalize an agreement with India by the end of the year. This trend of "de-Americanization" was also evident in ASEAN countries, which were discussing collective response measures to U.S. tariffs.

Historical experience showed that there were no winners in trade wars. The Smoot-Hawley Tariff Act of 1930 led to a 66% contraction in global trade volume and exacerbated the Great Depression. Today, as the U.S. attempted to reshape the globalization order with tariff sticks, the German finance minister's warning was like a wake-up call: Only by returning to multilateralism could the world avoid repeating historical mistakes. As Lindner said, "This dispute must end, not for Germany or the U.S., but for the economic stability of the entire world."