Germany Faces Export Challenges Amid Global Shifts and Domestic Pressures

Germany’s export-driven economy is under mounting pressure, prompting calls for urgent action to restore competitiveness and adapt to a changing global environment.

Recent shifts in U.S. policy, including increased tariffs and a more confrontational stance toward the Federal Reserve, have had immediate ramifications for international trade and central bank independence. For Germany, the newly imposed U.S. tariffs on EU goods—now at their highest levels since the 1930s—mean that German exporters face steeper costs and new uncertainties in their most important export market. While these tariffs contribute to weaker sales and squeezed margins for European firms, the overall impact on Germany’s GDP growth is expected to be modest, with some compensation coming from a stronger euro and slightly lower import prices in the euro area.

However, the challenges confronting German exports go beyond recent U.S. actions or the shockwaves from the pandemic and energy crises. Analysis reveals that Germany’s global export market share has been declining steadily since 2017, mainly due to a sustained loss of international competitiveness. High energy costs, pandemic-induced supply chain disruptions, rising labor and tax burdens, pervasive bureaucracy, and intensifying competition from countries like China have all eroded the strengths of Germany’s export sector. In addition, evolving global demand, particularly lower appetite for traditional German export goods like combustion-engine cars and aerospace products, has further exacerbated the problem.

In response, policymakers are urged to take decisive steps to revitalize German industry. Proposed measures include reducing bureaucratic obstacles, promoting skilled immigration, enhancing work incentives, encouraging investment through smarter tax policies, accelerating the energy transition, and diversifying supply chains. While recent policy tweaks—such as the “investment booster” for equipment and a reduced electricity tax for industry—offer some relief, more comprehensive reforms are needed to address deep-rooted structural issues.

Looking ahead, the emphasis is placed on both strengthening the export sector and fostering a more vibrant domestic economy, making Germany and Europe more resilient to external shocks. Deeper European integration, a more unified investment environment, and the pursuit of new free trade agreements are seen as crucial pathways to sustainable growth. The current pressure on German exports thus serves as a pivotal opportunity for transformation, reinforcing the need for robust policy responses to secure future prosperity.