A struggling Germany faces another setback with Trump's victory.

• The election of Donald Trump as U.S. President may negatively impact the already struggling German economy.
• Despite escaping a recession in the third quarter of 2024, Germany's economic outlook remains uninspiring.
• The economy of the country is heavily dependent on exports, making it vulnerable to the potential impact of tariffs on imports to the U.S. under a Trump administration.

The election of Donald Trump as U.S. President could represent another significant setback for Germany's struggling economy.

In the third quarter, Germany barely avoided a technical recession, with preliminary data indicating that its GDP grew by 0.2% after a 0.3% contraction in the previous quarter. This came after the German economy ministry in October revised its forecast, predicting that the country's economy will contract rather than grow this year.

While Germany's economy is not improving as quickly as expected, key indicators such as the composite PMI have also shown a lackluster trend. Specifically, the composite PMI, which was published on Wednesday, rose slightly in October but remained in contraction territory, according to data from S&P Global and Hamburg Commercial Bank.

Trump's victory could make matters worse.

The election of Donald Trump is likely to mark the start of the most challenging economic period in the history of the Federal Republic of Germany, according to Moritz Schularick, president of the Kiel Institute for the World Economy.

Schularick stated that the country is facing foreign trade and security policy challenges, in addition to the domestic structural crisis, and that the economic policies of Trump will further strain growth across Europe.

Reliance on exports

The US economy is heavily reliant on exports, and Trump's tariffs and import restrictions could negatively impact it.

Since the first half of this year, the U.S. has surpassed China as Germany's second largest trading partner, behind only China.

In 2023, approximately 9.9% of German exports were valued at going to the U.S., as reported by Destatis.

If elected, Trump could impose blanket tariffs of 10% to 20% on almost all imports, regardless of their origin.

The ifo economic institute stated on Wednesday that German exporters may now suffer.

If Trump follows through on his promise to impose 20 percent tariffs on all US imports from trading partners, German exporters will face significant losses, according to a statement.

The re-elected US President's measures could cause EUR 33 billion in economic damage to Germany alone, according to ifo, with German exports to the US potentially shedding about 15%.

Autos and chemicals are two sectors identified by Morningstar DBRS as being most exposed to potential Trump tariffs, which have traditionally been important pillars of the German industry.

The ifo Center for International Economics' director, Lisandra Flach, stated that Germany and the European Union must act independently in anticipation of the U.S. withdrawing from global cooperation.

The EU and Germany must take action to strengthen their stance by increasing the integration of the EU services market and imposing credible countermeasures against the US, as stated.

German political reaction

The U.S. election coincides with Germany's government crisis. On Wednesday, Chancellor Olaf Scholz dismissed Finance Minister Christian Lindner, causing the ruling coalition to disintegrate.

On Wednesday, Trump received congratulations from senior German political figures such as Scholz and Lindner.

According to a CNBC translation, Scholz assured journalists that Germany would continue to be a dependable ally.

Before his dismissal, Lindner had expressed a willingness to interact with Trump, stating on X that Europe should extend a hand to the Republican politician.

Lindner stated that in the EU, NATO, and Berlin, it is more urgent than ever to do our economic and security policy homework.

In an interview with CNBC last month, Lindner expressed concern that U.S. trade policy could become a problem if Trump were elected.

To avoid a trade conflict with the European Union, diplomatic efforts are necessary to convince whoever enters the White House that it is not in the best interest of the U.S. We must consider retaliation, as stated at the time.