VINACHEM

German chemical, pharmaceutical and other companies can expect to see a sharp decline in their exports to the important US market, as a result of tariffs, Jorg Kramer, chief economist at Germany’s Commerzbank, said in a webinar hosted by chemical producers’ trade group VCI.

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Commerzbank assumes that a US-EU trade deal, once reached, could lead to an average US import tariff of 15% on EU goods, which could imply that Germany’s exports to the US drop by one-third, Kramer said.

The US tariffs marked a “historic shift” (Zeitenwende) away from globalization to de-globalization, over the coming years, if not decades, he said.

“This will make for a difficult environment for Germany’s industry, and of course for its chemical industry,” he said.

At the same time, US tariffs on China were leading to more exports from China to Europe and Germany, putting pressure on prices, he said.

The causes for the US sentiment against free trade could be found in China’s accession to the World Trade Organization (WTO) in 2001, Kramer said.

Without China’s integration into the WTO, and the issues that caused, the high level of US protectionism would not have occurred, he said.

Chinese companies had built up massive overcapacities, causing declining producer prices and a push into export markets, he said.

About 23% of Chinese companies were making losses yet continued to operate, he noted.

US TO AVOID RECESSION

Meanwhile, although the tariff uncertainties would lead to lower economic growth in the US as well, the country would not fall into recession, Kramer said.

US President Donald Trump had taken over a “very solid economy”, Kramer said. Trump was inaugurated on 20 January.

Since the pandemic, the US economy grew by a cumulative 12%, Kramer said.

That growth alone was equivalent to Germany’s total GDP, demonstrating the “underlying dynamic” and strength of the US economy, he said.

GERMANY WILL NOT RISE TO TARIFF CHALLENGE

As for Germany, the country would see a recovery next year, largely driven by lower interest rates and planned debt-financed government spending on infrastructure and defense, he said.

There would be a near-term boost to GDP as the government was shifting defense and infrastructure spending out of its core budget, which would then create new room for spending in the core budget, he explained.

The recovery, with GDP growth of about 1.4% in 2026, may be a “flash in the pan”, but that was still better than a permanent recession, he said.

Germany’s GDP fell in both 2023 and 2024. For 2025, economists currently forecast 0.2-0.4% growth.

However, Kramer is skeptical that Germany will rise to the US tariff challenge and take it as an opportunity for a much-needed reset or restart (Neustart) of its economy, with Berlin addressing bureaucracy, high taxes, high labor costs, high energy costs, complex and expensive permitting processes, and other impediments to growth, he said.

Taxes: As it stands, it remains unclear if the new coalition government under Chancellor Friedrich Merz will really cut corporate taxes, Kramer said.

Labor costs: Germany’s already high labor costs and social security levies would continue to rise, he said.

Infrastructure: The government’s promised investments in infrastructure would continue to take years to realize as the country’s many environmental groups remain powerful, meaning that they can block or delay projects.

Energy: Germany would remain a high-cost country, and many chemical companies have already reacted by shutting capacities, he said.

Bureaucracy: While promising to reduce bureaucracy and red tape, over the last 20 years all German governments failed to keep those promises.

Reducing bureaucracy could only succeed if government trusts companies, and Kramer doubts that the government does, he said.

Meanwhile major German chemical firms – BASF, Covestro and Brenntag – have already written off 2025 and cut their earnings forecasts amid weak demand and the tariff uncertainties.

VCI, for its part, expects a 2% decline in Germany’s chemical production (excluding pharmaceuticals) in 2025.  – Source: ICIS