US tariff policy could impact Germany’s long-term growth prospects

Germany could face substantial economic adjustment costs and reduced long-term growth prospects in the event that US tariffs take full effect, a new report by KfW has found.

According to KfW, the current tariff policy by the Trump administration risks leading to deglobalisation and a reshaping of international trade, resulting in a loss of confidence in US trade policy that will have a lasting effect.

‘Spirit of uncertainty’

“The spirit of uncertainty is difficult to bring back,” commented Dr. Dirk Schumacher, chief economist at KfW, who added that countries are likely to increasingly review and adjust their critical dependencies in their economic ties with the US.

“There is no question that fair and modern rules for international trade are necessary and in everyone’s interest,” Schumacher added.

Specifically with regard to Germany, the country’s GDP may face a decline of up to 0.3% in the short-term if tariffs were to reach 20%, KfW noted. A 10% tariff rate would lead to a 10% decline in German exports to the US, while a 20% rate would lead to a 20% decline, it estimated.

Economic forecast

For now, KfW Research is maintaining its economic forecast for Germany of minus 0.2% for 2025 and plus 0.3% for 2026.

In the longer term, the study suggests that US consumers will increasingly opt for domestic products, while the tariff policy may lead to a shift in how countries view their dependencies on the US, further impacting trade relations globally, KfW said.

“Germany could now face reduced growth prospects in the long term,” Schumacher added. “The fiscal stimulus from the infrastructure package passed by the Bundestag in March will counteract the losses caused by US protectionism.” Read more here.