SCHUMANN Insights: The Effect of American Import Tariffs on the German Economy Using Steel as an Example

Already in his election campaign, the American President with his America first strategy announced that he would impose tariffs to make imports more expensive. His aim is to make American companies more competitive than their foreign competition through a price advantage and thus to increase their turnover. What effect this policy will actually have is difficult to predict, at least for the USA.

The largest volume of German exports goes to the USA. Therefore, companies that have a large turnover in the United States can be expected to have significant reductions in total sales. It remains to be seen whether the EU will react to this development with counter-tariffs. In some areas, this reaction could also have negative consequences for German companies, especially those that produce in the USA for the European market.
In some segments such as the automotive industry, this variant is likely to be more common than imports from American companies. Prices for goods imported from the USA would increase, which could cause buyers to look for cheaper alternatives. This reduces turnover and companies would have to adjust their capacities where possible. That could also mean a loss of jobs. In total, the economic downturn would be accelerated, which could result in insolvencies.

How the tariffs affect the USA itself remains to be seen. The question is whether the United States is even able to manufacture previously imported goods itself in sufficient quantities. If this is not the case, prices will increase for American consumers or at least the cost of imported components will go up. This would also have a negative effect on the development of end-product prices for consumers and would probably lead to reduced demand.

One of the first fields being considered for punitive American import tariffs of 25% is products based on steel, iron and aluminium production. In Germany, this industry is already struggling with immense cost increases as a result of the large rise in energy prices. Germany is the most expensive country in the EU in terms of energy; iron and steel products from other European countries, and especially from China, are cheaper. The latter is flooding the market, leading to price reductions, so that the situation for the German steel industry is already very difficult.

In addition, in Germany the transformation to "green steel" is being forced onward, meaning that hydrogen should be used as a source of energy instead of natural gas. The question is, however, whether the companies will be able to generate sufficient retained earnings to cope with this costly transformation process - especially as government support measures are far from certain.

A glance at exports from this sector in northern Germany shows that the USA only accounts for a small proportion. It is also possibly the case that this consists largely of special steel types that cannot be produced in the USA in the necessary quantities. This means that the dependence on the US market is not as large or problematic as it may appear at first.

In conclusion, the main negative factor for German steel production is primarily the higher costs caused by the strong increase in the price of fossil fuels. In some steelworks this has already led to production limitations and has negatively affected the financial situation of some companies. Punitive American tariffs have little or no effect on the fundamental situation.

Currently much more decisive are:

1. price competition with Chinese suppliers,
2. the slump in sales in the industries using the metals,
3. and the question of whether enough reserves are available for the transformation to green steel.

These factors will ultimately determine the future of German steel production. The American import tariffs that have been announced can place an additional burden on developments, but they are just one element in an already challenging environment.