Germany braces under collapsing government and looming Trump trade war

With the re-election of former President Donald Trump to the White House and the collapse of the coalition government under German Chancellor Olaf Scholz, Germany is bracing for an economically and politically dubious time. 

From the campaign trail, Trump pledged to increase import tariffs on friends and foes alike under the “Trump Reciprocal Trade Act” which would increase all U.S. tariffs to match the taxes enforced by each corresponding country.  

“If India, China, or any other country hits us with a 100 or 200 percent tariff on American-made goods, we will hit them with the same exact tariff,” he outlined in his campaign agenda. “If they charge US, we charge THEM—an eye for an eye, a tariff for a tariff, same exact amount.”

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However, it is unclear if the president-elect still plans to push these specific tariff increases, as he has also suggested there should be a 10% tariff on imports from all countries, as well as 60% duties on imports from China, according to a Reuters report. 

China was not the only country in Trump’s crosshairs, as the now president-elect also referred to the European Union (EU) as a “mini China” and warned the bloc would have to pay up.

“They don’t take our cars. They don’t take our farm products. They sell millions and millions of cars in the United States,” he told supporters at an October rally in Pennsylvania. “No, no, no. They are going to have to pay a big price.”

Some economic experts have warned that increasing tariffs – which are paid by companies importing the goods, not by government entities – could lead to rising costs worldwide, including in the U.S., as well as further inflation.

A report earlier this month by the German Marshall Fund (GMF) pointed to findings by Germany’s Institute for Economic Research in Cologne that said the promised Trump tariffs are estimated to cost the country roughly $127 billion over the next four years. 

German Chancellor Olaf Scholz leaves the Bellevue Palace in Berlin on Thursday, Nov. 7, 2024. (AP Photo/Ebrahim Noroozi)

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“Trump’s victory does not bode well for a Germany that is dependent on U.S. security and thrives on open markets,” the GMF said in its report on how the U.S. election will impact Germany. “And uncertainty in Europe’s largest economy is not ideal when the EU needs to find its place in a world in which the U.S. president is not expected to support the traditional, rules-based international order.”

However, it is not only Germany’s flagging economy that could spell uncertainty for Berlin’s international standing, as Scholz faces a vote of no confidence in January after he fired his Finance Minister Christian Lindner and his coalition government collapsed. 

A confidence vote is now set to be held in Germany on December 16 – which Scholz, given his minority status, is expected to lose. 

European Commission President Ursula von der Leyen speaks during a debate at the European Parliament in Strasbourg, eastern France, on Jan. 17, 2024. (Frederick Florin/AFP via Getty Images)

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The most likely next step will be for German President Frank-Walter Steinmeier to dissolve the parliament and call for elections which are not expected to be held on Feb. 23, 2025.  

The EU now stares down a potential trade war with the Trump administration while one of its leading nations, both geopolitically and economically, will essentially sit as a lame duck while Berlin waits to see who will be next to lead the country. 

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German opposition leader Friedrich Merz – who could find himself the next German chancellor – said he intends to cut a deal with Trump.

In an interview with Stern magazine, Merz reportedly said, “In Germany, we have never really articulated and enforced our interests well enough, and we have to change that.

“The Americans are much more on the offensive. It shouldn’t end with only one side profiting, but rather with us making good arrangements for both sides,” Merz said according to a Bloomberg report on the interview. “Trump would call it a deal.”