Trump 2.0 – What to do now

What does it mean for the German economy?

The impact of the foreseeable measures on German companies - as well as recommendations for action in this respect - can be divided into three areas, depending on the sector, the main sales markets and the international links of the companies or groups of companies concerned.

Export-oriented companies with a strong market in the USA

For export-oriented German companies for which the US is an important sales market, the additional US import tariffs of 10-20% announced by President-elect Trump are of great significance. In particular, the German automotive industry, which has been targeted by the president-elect, as well as pharmaceutical companies, will be severely affected by the planned measures. Even if companies are well advised to open up other markets in order to become less dependent on the US, the US will remain an important market in the future. In addition to a possible relocation of production capacity to the US - which would be the aim of the measures announced by Donald Trump - it is important for German companies to explore alternatives that can avoid high import tariffs without causing production costs to skyrocket. The German automotive industry has already taken steps in the right direction. In addition to its own production facilities in the US, it has used various free trade agreements to import vehicles into the US as cheaply as possible. For example, some production has been moved to Mexico to take advantage of the EU-Mexico and USMCA agreements. It remains to be seen whether this strategy will be able to prevent the application of significant import tariffs in the long term, or whether the US will seek to limit the USMCA agreement in its favor.

Companies with an EU market for US products

It is not only the US that is expected to significantly increase its import tariffs. Rather, it is likely that the EU will also announce and implement changes to import tariffs on US products in the near future - and as part of retaliatory measures - if the additional US tariffs are implemented as announced. Although the list of products to be affected is still "under wraps", reciprocal import tariff increases are likely to affect "import hits" such as peanut butter, jeans, Harley-Davidson motorcycles and whiskey, among others. This is likely to hit EU-based retailers hard. For this reason, existing supply relationships should already be reviewed for possible alternatives and their adaptability should be assessed in general terms; in addition, it should be clarified in good time whether and to what extent a switch to alternative products or alternatively sourced products is conceivable.

Companies with Chinese ownership and/or Chinese pre-production

For companies with Chinese shareholders and companies that are significantly dependent on the use of Chinese inputs, the situation becomes "challenging", especially for products for which the US is a significant market. In addition to the 10-20% tariffs on EU products threatened by President-elect Donald Trump, these companies could be hit by further US measures as tariffs of up to 60% are planned on Chinese products. It is not yet clear to what extent these tariffs will be applied only to Chinese products or also to products with Chinese components and/or from companies with a Chinese ownership structure. However, there are already signs of an imminent escalation of the conflict, particularly in the technology sector. Companies are therefore well advised to analyze their supply chains in detail as part of their existing de-risking & de-coupling strategies (and possibly beyond) and to develop mitigation strategies for the conceivable scenarios now, in order to be prepared for any measures and to be able to mitigate their negative consequences. Possible options include alternative sourcing, the use of alternative intermediates, alternative supply chains or partial relocation of production.

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Published: November 2024