Germany Faces Economic Crisis Amid Rising Tariffs and Costs

Germany’s economy is on the brink of crisis as the impact of increased tariffs and soaring energy costs takes its toll. The asymmetrical trade agreement between the European Union (EU) and the United States is expected to exacerbate the ongoing recession, with insufficient political and corporate will to implement necessary policy changes. Economic indicators suggest a troubling trajectory, as Germany contracted by 0.9% in 2023 and another 0.5% in the previous year, with further decline anticipated in 2025.

The sectors that have historically underpinned Germany’s prosperity—automobiles, construction, and machinery—are now facing intense pressure. The private sector is projected to shrink by 4–5% this year without the artificial support of state spending, which currently constitutes approximately half of the country’s GDP. Furthermore, productivity has been on a steady decline since 2018, posing significant challenges for the workforce.

The social ramifications are equally concerning. Germany is importing hundreds of thousands of welfare migrants, yet to maintain current prosperity levels, a robust economic recovery is essential. A recent survey conducted by the German Chamber of Commerce and Industry (DIHK) highlights that the EU–US trade deal will particularly disadvantage Germany’s export-driven economy. The survey reveals that 58% of businesses foresee additional burdens, a figure that rises to 74% for companies engaged directly with the US market. Only 5% anticipate any benefits from the agreement.

“While this deal may have been politically necessary, for many German companies, it’s a bitter pill,” stated DIHK CEO Helena Melnikov. The implementation of a general 15% tariff on exports to the US has particularly affected automotive and machinery manufacturers. Among US-oriented companies, 89% report immediate disadvantages, with 72% fearing further tariff increases. Additionally, 80% are concerned about political instability affecting transatlantic trade, and over half plan to reduce operations in the US.

In a survey conducted in May 2024, which included over 21,000 businesses, only 23% expressed positive business expectations, a decline of five points from previous surveys. Among industrial firms, one in three anticipates fewer orders. Investment plans are also dim, with only 19% looking to increase their investment while around a third intend to cut back. High energy prices, labor shortages, and political uncertainty are identified as significant barriers to growth.

The DIHK forecasts a 0.3% recession for 2025; however, when adjusting for state spending, the actual decline could be closer to 4–5%. Daily assessments indicate a disheartening trend: Germany is experiencing deindustrialization, losing hundreds of thousands of jobs in core sectors, while emerging social security deficits signal deeper issues.

Despite the mounting evidence, political and business leaders remain reluctant to confront the reality. The Green Deal, while aimed at climate change mitigation, is viewed as a primary contributor to the economic decline. Energy costs for German industries are reportedly up to three times higher than those faced by US competitors and double that of French firms, leading to the offshoring of energy-intensive sectors.

A vocal minority has begun to address these issues. In June, a letter to Chancellor Olaf Scholz explicitly cited the Green Deal as a root cause of the economic downturn. Nonetheless, many corporate leaders, such as Ola Källenius, CEO of Mercedes-Benz, attribute falling margins to “weak demand, high production costs, and US tariff uncertainty,” sidestepping the Green Deal’s implications. Similarly, Oliver Blume, CEO of Volkswagen, has called for lower energy prices and tax incentives for electric vehicles, advocating for further subsidies to sustain the transition.

The current climate has resulted in a corporatist mindset within corporate leadership, where larger corporations can adapt or relocate to navigate regulations. In contrast, small and medium-sized enterprises, known as the Mittelstand, are disproportionately affected, struggling for survival in an increasingly hostile environment. Recent data indicates that insolvencies rose by 9.4% year-on-year in the first half of 2025, totaling 11,900 companies.

As the situation develops, the outlook for Germany remains bleak. Without a significant policy shift regarding climate initiatives and economic strategies, the nation faces a potentially tumultuous autumn, both economically and socially. The corporate elite, thus far, has not effectively mobilized to effect change, leaving many to wonder how long the current trajectory can continue.