Bundesbank Warns of Dire Economic Consequences if US President Trump Implements Trade Threats
The Bundesbank, Germany’s central bank, has issued a dire warning regarding the potential impact of US President Donald Trump’s trade policy on the German economy. According to Bundesbank President Joachim Nagel, a protectionist approach by the United States would inflict "considerable risks for economic growth" on Germany, a major exporting nation.
Based on modeling scenarios, the Bundesbank estimates that Germany’s economic output could be reduced by nearly 1.5 percentage points in 2027 compared to previous projections due to Trump’s trade actions. Inflation may also accelerate, although the extent of this effect remains uncertain.
Trump’s election campaign promises, which form the basis for the Bundesbank’s analysis, include imposing 60% tariffs on imports from China and 10% tariffs on products from Germany and other countries.
To date, the US administration has implemented 10% tariffs on Chinese goods. Additional tariffs of 25% on aluminum and steel have been announced for March, and similar tariffs against Mexico and Canada are being considered. Trump has also signed an executive order requiring the United States to raise tariffs to match or exceed those charged by its trading partners. Further tariff announcements are expected, including on automobiles, computer chips, and pharmaceuticals.
The Bundesbank’s analysis incorporates not only the proposed US tariffs but also other announced policy measures, such as tax cuts and a large-scale deportation of immigrants in the United States. It also assumes that trading partners will retaliate with tariffs of their own, as the European Union has indicated.
"The German economy would suffer considerably under such a policy shift," Nagel stated. While a depreciation of the euro could enhance the competitiveness of German exporters, it would not fully offset the negative effects of trade restrictions.
The United States would also suffer from increased tariffs, Nagel said. "Losses of purchasing power and higher costs for intermediate inputs would outweigh any competitive advantages for US industry." Inflation rates would also rise sharply. "Contrary to the government’s announcements, the consequences of the tariffs for the US should therefore be negative."
The Bundesbank’s assessment aligns with the concerns of many economists. A study by the Peterson Institute for International Economics concluded that a trade war between the United States and its major trading partners could reduce global growth by up to 1.5% over the next three years.
The potential impact of Trump’s tariff policies has raised questions about the resilience of the global economy. The International Monetary Fund (IMF) has downgraded its global growth forecast for 2018 and 2019, citing trade tensions as a major factor.
The Bundesbank’s warning adds to a growing chorus of voices calling for a de-escalation of trade tensions. The consequences of a full-blown trade war could be severe for both the United States and its economic partners.
