It's highly probable that we might experience another economic downturn under President Trump's administration.
Trump's trade policies pose a looming threat of trade wars, potentially pushing Germany into another recession year. Marcel Fratzscher, head of the German Institute for Economic Research (DIW), warns of a triple-whammy if a trade conflict ensues. This would result in reduced exports, further weakening domestic industries in challenging times, potentially expediting deindustrialization and job losses in Germany's manufacturing sector.
Fratzscher predicts a stark reality for the population. Higher prices and inflation, fuelled by the trade conflict, would disproportionately affect middle and low-income families, squeeze their purchasing power, and lower living standards. Higher interest rates could further troubleshoot the economy.
Under these circumstances, Fratzscher urges an immediate strengthening of Europe. He glooms over the potential introduction of tariffs by Trump, stating that Germany will be hit hard due to its large trade surpluses. Fratzscher suggests that the European Union must rectify past mistakes and bolster its strength to stand firm against the US.
Europe can employ several strategic steps to protect its trade position in the face of potential US tariffs. Export market diversification, thriving new trade agreements, reinforced geographical origin labels, and negotiations with the US are some viable solutions. Additionally, European automakers may need to relocate manufacturing to mitigate the impact of potential tariffs.
However, these transitions can lead to logistical challenges, increased competition, and retaliatory measures from the US, potentially impacting the broader US economy. Middle and low-income Germans could bear the brunt of the economic implications through job losses and reduced competitiveness in the automotive sector. The ripple effects could extend to indirect employment in associated industries.
In essence, while Europe can fortify its trade position, the repercussions on middle and low-income Germans could be dire, necessitating careful consideration and planning.
The trade conflict, initiated by Trump's trade policies, could significantly increase prices and inflation in Germany, impacting middle and low-income families the most. Fratzscher also fears that Germany will be heavily affected by potential tariffs due to its large trade surpluses.
