“US tariffs could deepen recession” - Germany's Central Bank warns of risks of a trade war
Tariffs on goods imported from the US could push Europe's largest economy into another recession, according to the president of Germany's Central Bank.
Germany's economy has been shrinking for the past two years and with the tariffs, the country "can expect a recession this year as well," said Joachim Nagel, head of the Bundesbank. Without the tariffs, the bank predicts the German economy would stagnate but still grow by about 0.2%.
He said "there are only losers" when tariffs are imposed and supported the EU's retaliatory measures against US President Donald Trump's 25% tariff on all foreign steel imports.
The tariffs are a central part of Trump's overall economic vision. He hopes they will boost U.S. manufacturing and protect jobs, but critics say they will raise prices for American consumers in the short term.
In response to Trump's move, the EU has responded with import taxes on a range of American products, which will take effect on April 1.
Nagel called Trump's tariff policy an "economics from the past" and "definitely not a good idea."
A global trade war is one of the concerns from tariffs and retaliatory measures, he said, but added that it was a "necessity" for the EU to react "because if someone is acting against you, you cannot accept such a policy".
However, Nagel said that when the US realizes that Americans will pay higher prices, it will allow further opportunities for all parties to find another solution. "I hope that in the end good politics will succeed," he said.
Germany's export economy has been one of its strengths in recent decades, and its cars like BMW, Mercedes, Volkswagen and Audi are popular in the US.
Nagel rejected claims that Germany was the "sick man of Europe", saying it had a "strong economic base" and "strong small and medium-sized companies".
“But still, when you are exposed to an export-oriented model, then you are more exposed to a situation where tariffs are rising and there are so many unknowns,” he added. The Bundesbank head said Germany could overcome such challenges “over the next two years.” However, German consumers will face higher prices.
The German Federation of Wholesale, Foreign Trade and Services warned that Germans may have to spend more to pay for American products, such as orange juice, whiskey and peanut butter.
Commenting on recent changes to Germany's economic policy, which allow the country to borrow more to spend on defense and infrastructure, Nagel said it was an "extraordinary measure" for an "extraordinary time."
"The entire world is facing tectonic changes that make the current situation very different from those seen in the past, consequently fiscal change is also coming," he said.
He added that the policy change would allow Germany some financial breathing space for recovery in the coming years, adding that it provided a "signal of stability for the market."
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