Q&A after the US Election: The Future of Transatlantic Relations

What does the new President's inauguration mean for the German and European economy? 

President Trump’s initial actions and statements have already made clear that he intends to follow through on his campaign promises – perhaps not following the exact timeline he outlined during the election, but still at a rapid pace. Under Trump, the United States has once again withdrawn from the Paris Climate Agreement. He has also pulled the country out of the World Health Organization. He wants to weaken multilateral mechanisms, which poses serious challenges for the German economy. 

Trump has also made it very clear that he plans to continue the protectionist course set during his first term. German industry is particularly concerned about the introduction of sweeping new tariffs. Broad tariffs of 10 or even 20 percent on all imports – and up to 60 percent on imports from China – would be highly damaging not just for Germany and the EU, but also for the U.S. economy. 

In his first few days in office, President Trump already signed multiple executive orders. However, he cannot implement everything unilaterally. Some of his key plans – such as lowering the corporate tax to 15 percent – require congressional approval. While Republicans hold narrow majorities in both chambers, even a small number of dissenters within their ranks could derail his agenda. Nonetheless, in several critical economic policy areas, there is bipartisan agreement. A growing consensus has emerged in the United States, across party lines, that globalization has contributed to the decline of industrial jobs. Both Republicans and Democrats agree that the United States must strengthen its domestic industry and bring jobs back home. Trump will be able to continue his "America First" strategy, prioritizing the domestic market with little regard for allies such as the EU. 

Economic security also remains a bipartisan priority in the country – a trend that has been evident in recent years and is likely to intensify under Trump. Washington will maintain its hardline stance on China, increasing pressure on Germany and the European Union (EU) to support measures such as export controls and investment restrictions. 

Donald Trump’s re-election is a wake-up call for Germany and Europe: We must further develop our existing strategies to strengthen our own competitiveness, improve defense capabilities, and for dealing with China – and we must do so much than before. A targeted, transactional strategy coupled with pragmatic and confident negotiations will be crucial to safeguarding the EU’s interests. 

Are additional tariffs on German goods likely under Trump?  

During the election campaign, Donald Trump frequently discussed his plans to introduce new tariffs. He proposed across-the-board tariffs of 10 or 20 percent on all imports from third countries – measures that would place a significant burden on companies in export-driven economies like Germany, which depend on open markets. Additionally, Trump spoke about his plans to impose tariffs of 60 percent on imports from China. If the U.S. market becomes increasingly closed, this could result in trade diversion, with Chinese products flowing into the European market instead. Another idea mentioned during the campaign was “reciprocal tariffs,” which would adjust U.S. tariff levels to match those of its trading partners. 

Since taking office, Trump has sharply criticized the EU for its trade surplus with the United States, arguing that the bloc does not import enough American cars and agricultural products. He already imposed tariffs on Mexico, Canada and China from February 1 onwards, but then paused the tariffs on Mexico and Canada for a month shortly before they were to enter into force. 

However, the new administration is currently also reassessing the United States’ trade relations and policies. On the very day of his inauguration, Trump signed a presidential memorandum titled "America First Trade Policy." This directive instructs the relevant authorities and agencies to conduct extensive reviews and submit reports on a range of issues, including the causes of bilateral trade deficits, unfair trade practices, the impact of the USMCA on the U.S. economy, currency manipulation, existing trade agreements, current regulations as well as punitive tariffs on trade with China, trade policy measures related to national security, the export control system, and illegal migration as well as fentanyl flows from Canada and Mexico. The presidential memorandum is furthermore calling for the creation of an External Revenue Service (ERS) to oversee the collection of duties, tariffs, and other foreign trade revenues, as well as a review of anti-dumping and countervailing duty (AD/CVD) laws to ensure compliance by foreign governments and respondents. Additionally, the Office of the U.S. Trade Representative (USTR) has been tasked with identifying potential bilateral or sector-specific trade agreements to expand market access for U.S. exporters. The deadlines for these reports are mostly set for April 1, 2025. 

Higher tariffs not only hurt trading partners like Canada, Mexico, Germany and the EU but also negatively impact the U.S. economy, particularly by fueling inflation. The Cologne Institute for Economic Research (IW Köln) has estimated that Trump’s tariff plans could cost the German economy up to 180 billion euros from 2025 to 2028. Meanwhile, the Peterson Institute for International Economics, an independent think tank, has calculated that Trump’s tariff plans would cost average middle-income US household could see costs increase by over $2,600 annually, with even greater financial strain on lower-income households. 

Trump could also move quickly to reintroduce the currently suspended Section 232 tariffs on steel and aluminum imports from the EU. Additionally, tariffs on German and European car exports to the United States could once again be on the table. During Trump’s first term, an investigation into automobile imports under Section 232 of the Trade Expansion Act of 1962 was completed, though tariffs were not ultimately imposed at that time. 

However, imposing blanket tariffs on all imports from all trading partners could prove more legally challenging. The Trump administration would need to find creative ways to establish a legal basis for such measures – though this possibility cannot be entirely ruled out. If challenged, the issue could ultimately be decided in the courts. 

What are President Trump’s plans for the Inflation Reduction Act and the BIL infrastructure package and what impact would this have on German industry? 

Trump has previously criticized the Inflation Reduction Act (IRA) for subsidizing and prioritizing renewable energy and clean technologies. At the very start of his second term, he announced a shift in U.S. energy policy and the end of U.S. climate policy. By executive order, he declared a national energy emergency, citing what he views as inadequate U.S. energy supply and infrastructure. He also ordered a halt to all direct payments (excluding tax credits) from both the Inflation Reduction Act and the Bipartisan Infrastructure Law until newly established departments and agencies can review their allocation and objectives. While the president cannot permanently block funds already authorized by Congress (a process known as “impoundment”), he can temporarily suspend them. According to analysts and advisers in Washington, Trump and his Office of Management and Budget (OMB) director appear willing to fully withhold these funds, even if it means provoking a legal battle before the Supreme Court. Such a move could delay funded projects for months or even years, directly impacting German subsidiaries and suppliers involved in these projects. 

Only Congress has the authority to make substantive changes to the IRA itself. The fate of its tax credits and funding will be determined in the 2025 tax and budget negotiations. While a full repeal of the IRA is unlikely, many private investments tied to the IRA have been made in Republican districts, meaning there is bipartisan interest in preserving at least some of the funding. Some Republican lawmakers have even defended certain energy tax credits. However, specific provisions are at risk, particularly tax credits for electric vehicles and renewable/clean energy. A targeted rollback of selected IRA provisions is therefore more likely than a full repeal. At the same time, the Trump administration can rewrite the implementation rules for the IRA to ensure that subsidies primarily benefit U.S. companies – a move that would disadvantage German and European firms. Furthermore, the administration could introduce stricter eligibility requirements for IRA tax credits, making it difficult for companies to qualify and significantly limiting payouts. 

Overall, delays or cancellations of IRA-related support measures could weaken the competitiveness of companies in the renewable energy and climate protection sectors while affecting the investment strategies and export opportunities of German industries regarding the U.S. market. 

What does the Trump presidency mean for (our) defense policy?  

The United States remains a critical pillar in the security framework of Germany and Europe. However, Trump’s threat to condition NATO’s collective defense obligations on member states’ defense spending has destabilized this foundation. Even if the United States does not formally leave NATO, such rhetoric alone undermines the alliance's credibility. Moreover, continued U.S. support for Ukraine and Taiwan under a future Trump administration is far from guaranteed.  

A U.S. withdrawal from NATO would pose a severe threat to Western security. To counter any weakening of NATO and safeguard Europe’s security, the EU and its member states must invest decisively in bolstering their military capabilities. Significant investments in defense are necessary. Expanding industrial capacities is also crucial to meet the growing demand for equipment and ammunition needed by the German Armed Forces, by NATO allies, and by Ukraine. In the medium run, this will require not only meeting the two percent of GDP target for defense spending but potentially increasing it to three percent or more.  

What does Trump’s second term mean for German industry’s approach to China?  

National security has now become the primary driver of U.S. economic policy – a trend that will intensify under Trump’s second administration. For several years, the United States has prioritized “economic security” over traditional trade policy, while Europe still grapples with establishing a cohesive understanding of the concept. 

This further shift toward security-driven economic policymaking means that the United States will continue to take a tough stance on China’s trade practices. In fact, Trump has already taken the first steps toward tightening trade restrictions. In his “America First Trade Policy” memorandum, he directed the Office of the U.S. Trade Representative (USTR) to reassess the results of the four-year review of the Section 301 tariffs, which had been concluded in May 2024. The review of the review is expected to focus on analyzing industrial supply chains and identifying potential circumvention tactics used by third countries. Based on this assessment, the administration is likely to recommend further investigations and additional tariff measures targeting China. Trump is also pushing for a legislative review to reevaluate China’s status as a Permanent Normal Trade Relations (PNTR) partner. While President Biden maintained – and in some cases even expanded – the tariffs imposed on Chinese imports during Trump’s first term, the new Trump administration might escalate trade tensions even further. It is likely that U.S. export controls on China’s high-tech sector will be tightened once again, creating additional challenges for European businesses operating in these industries. 

As part of his “America First Trade Policy,” Trump has also ordered a comprehensive review of the Outbound Investment Security Program, which only came into effect on January 2, 2025. The program aims to regulate and, if necessary, restrict investments by U.S. persons in strategically important Chinese technology companies. It encompasses both outright bans and reporting requirements for investments in critical sectors such as semiconductors, artificial intelligence, and quantum information technology. The newly ordered review is intended to assess whether the current measures are sufficient to mitigate national security risks or whether further tightening is required. Additional restrictions, such as those targeting indirect investments or expanding controls to other technological sectors, are also under consideration. In any case, pressure on European allies to support U.S. measures against China will continue to grow—posing significant challenges for German companies as well. 

How is German industry preparing for the new US administration?   

German industry is in close contact with the politicians in Berlin and Brussels and is ready to closely coordinate on potential countermeasures to U.S. tariffs, as well as regarding offers to the United States. 

In the summer of 2021, the BDI, together with three other major German economic associations – the DIHK, the BGA, and the BdB – established the Transatlantic Business Initiative (TBI). The TBI is dedicated to strengthening economic ties between Germany, the United States, and Canada, serving as the primary point of contact for economic policy matters, particularly for the German Federal Government, the U.S. and Canadian governments, and EU institutions. In recent years, the TBI has made regular visits to Washington, D.C., engaging in numerous discussions, including meetings with Republican representatives. For more than 30 years, the BDI has maintained a presence through a joint liaison office with the DIHK, known as the Representative of German Industry and Trade (RGIT). We can now build on these established connections and networks.  

What measures can the EU take in response to Trump’s economic and trade policies? 

The EU Commission has several tools at its disposal to respond to new U.S. tariffs on EU goods. If necessary, it could introduce countermeasures, though the exact response would depend on the specific nature and legal basis of the U.S. actions. However, for any EU response to be effective, it would require a high degree of unity among member states. 

Tariffs should – if possible – be avoided as they would further escalate tensions. Instead, the EU must remain flexible and open to balanced compromises. Rather than retaliatory measures, the EU should focus on making targeted proposals to the United States on how mutually beneficial cooperation can be expanded. Past experience has shown that agreements and deals with Trump are possible. 

There is significant potential for deeper transatlantic collaboration in areas such as regulatory alignment, technical standards, and strengthening supply chain resilience. Additionally, it would be highly beneficial for the EU and United States to closely coordinate on policies such as export controls and investment screening – ensuring a level playing field for European and U.S. companies, making measures efficient, and minimizing unnecessary burdens on businesses. However, a prerequisite for closer cooperation with the United States is that Germany and Europe develop a common understanding of economic security and its geopolitical implications. While the United States has long viewed economic policy through a national security lens, Europe still lags behind in this discussion, which must now be intensified and addressed. At the same time, Europe must strengthen its own competitiveness to position itself as a confident and equal partner in transatlantic relations. Because, despite any rhetoric from the incoming U.S. administration, the U.S. economy also benefits from strong, stable trade and investment ties with Germany and the EU. 

What is needed now to strengthen transatlantic economic relations?  

Transatlantic economic relations are, and will continue to be, of immense importance. In 2024, the United States was Germany’s most important trading partner. For the ninth consecutive year, it remained the largest buyer of German goods, with pharmaceuticals, machinery, and automobiles topping the list. With a foreign direct investment totaling 658 billion U.S. dollars, Germany has become the third-largest foreign investor in the United States. Any new reciprocal tariffs would inflict significant damage on both sides and should be avoided at all costs. After all, the U.S. economy also greatly benefits from its economic relationship with Germany. German companies currently employ more than 870,000 people in the United States. 

A comprehensive trade agreement like TTIP is unrealistic in the short term. However, smaller, more targeted agreements – such as those aimed at facilitating trade in industrial goods or harmonizing technical standards – could help to strengthen transatlantic relations. 

The future of the EU-US Trade and Technology Council (TTC), established in 2021, is uncertain. Although the TTC has not fully met business community expectations, it has been the most significant platform for transatlantic economic collaboration in recent years. Therefore, the European Commission should propose to the Trump administration that the TTC either be extended or replaced by a similar forum. Nevertheless, enhancements are necessary, such as increased stakeholder involvement and more strategic prioritization. The EU and the United States should also agree on key focus areas and pursue them with determination.