In recent years, Germany’s economy has slowly eroded, with average GDP growth forecasted to decrease to only 0.3 percent for 2025, significantly lower than its European counterparts [1]. This lies in contrast to their robust economic growth rate of 2.2 percent from a decade prior [2]. In addition, the industrial manufacturing that was once the backbone of the German economy has been steadily declining, with there having been a 10 percent reduction in industrial output in Germany in the last 10 years [3]. These economic shifts are occurring within the context of an increasingly protectionist world economy, driven by the United States (U.S.) making clear that tariffs are likely to be placed on the European Union (EU) [4]. 

Such a shift in U.S. policy is projected to worsen Germany’s current economic condition, given its continued reliance on export-oriented industries for its economic growth. In particular, a key strategy of German economic planning has been to prioritize high trade surpluses through high levels of export of products such as automobiles, machinery, and other manufacturing-based items. These exports have primarily been focused towards the EU and the U.S., displaying the importance of maintaining low trade barriers with these trading partners. In addition, other factors, such as shifting global demand, supply chain disruptions, and increasing competition, have begun to challenge this model.

Germany has also struggled to provide the support needed to keep its economy globally competitive. In order to maintain a budget surplus within the nation, Germany has opted to focus on maintaining low levels of domestic spending and investment, while maintaining high exports. These policies have helped maintain a balanced budget for the nation, while also causing significant economic strain in the long run. In particular, these policies have forced Germany to underinvest in both key industries and their own infrastructure, and are very different from how most developed countries have opted to manage their economy [5]. One such nation is the U.S., which has prioritized domestic investment in key industries through legislation such as the CHIPS and Science Act. This act allocated significant investment and subsidies for critical sectors of the U.S. economy such as semiconductor manufacturing and technological innovation, displaying how other developed nations are actively pursuing strong economic investment [6]. To add to this, Germany has continued to maintain high levels of economic regulation, with EU and German regulations often forcing small and midsize companies to relocate elsewhere, due to their inability to make a profit while abiding with the complexities of this overregulation. Although larger corporations can deal with such levels of regulation, these policies serve as a major hindrance to startups as they make it much more difficult for smaller companies to grow within Germany while abiding with the costs needed to comply with such regulations. These regulations include excessive paperwork obligations and intricate EU regulatory laws that make it very difficult for mid-sized and small companies to conduct business in Germany. Such policies are particularly concerning given that midsized companies are responsible for 55 percent of total employment within Germany [7]. This policy framework has created an economic climate inconducive to increased economic activity, stifling the growth of startups, along with minimizing industries’ ability to benefit from government subsidies or support [8]. 

In particular, Germany has continued to invest a majority of its budget surplus into foreign markets such as the U.S., undoubtedly attracted by the high returns promised from such investments [9]. In doing so, however, Germany has lost the ability to invest in growing industries at a time when global economic growth is being led by new industries, such as those in the artificial intelligence space. By prioritizing easy funding for startups and key industries, Germany can help maintain the innovation which helped propel German manufacturing to the heights it reached during the 20th century.

These fiscal policies also played a major role in shaping EU economic strategy as a whole in the past decade, at a major cost to Germany. Following the Eurozone debt crisis, Germany used its power to influence EU nations such as Greece and Italy to implement strict austerity measures in order to help stabilize the financial situation. These measures mirrored the economic policies seen domestically within Germany, and served to limit public sector spending, along with investment in key industries. Although these policies served to stabilize these nations’ financial situation in the short term, the lack of investment in these economies has also led to a sharp decrease in the demand for German exports within Europe. This is because as these nations faced these economic shortfalls, their consumer spending, wages, and unemployment plummeted significantly, lowering their demand for high-quality German exports [10]. 

As a whole, Germany’s reliance on high levels of export is a model at risk due to recent developments in the global economy. In particular, potential tariffs from the U.S., currently the largest market for German exports, will quickly increase costs for German manufacturers. Coupled with domestic economic conditions that have made industrial innovation and growth difficult, these cost increases will minimize key manufacturing sectors’ global competitiveness. Given that the German economy is heavily reliant on international demand to sustain growth, these potential developments will serve to quickly destabilize the economy [11]. In addition, the energy crisis following Germany’s halt of Russian energy imports displayed the nation’s vulnerability to foreign influences, highlighting its broader dependence on the global economy [12]. One impact of this energy crisis was a sharp decrease in manufacturing output within Germany following this quick reduction in their energy supply. Germany’s reliance on global supply chains such as energy from Russia displays exactly how much changes in the global economy can impact the nation in the future, underscoring the potential impacts that increased protectionism may have in the future [13]. 

Expanding on the implications of potential tariffs, Germany can potentially lose a significant amount of export revenue, which can quickly shrink an economy that is so reliant on these exports to maintain their surpluses [14]. This is evident given the correlation displayed prior between overall unemployment in Germany and the strength of their export-based industries [15,16]. This is because many of the smaller service-based industries in Germany rely on the trickle-down effect of the economy's strong manufacturing base to maintain its economic strength [17]. In short, an increase in unemployment in export-reliant industries can quickly lead to a larger economic downturn. 

To compound this issue, Germany is already facing high levels of global competition in previously dominated industries from nations such as China, which offers an economic environment where there is less government regulation along with lower manufacturing costs [18]. Although in the past German and Chinese economic activities were largely complementary, China has begun to threaten key German industries by introducing local competition through the production of high-quality industrial goods at lower costs, often backed by government subsidies and aggressive expansion strategies. China will undoubtedly continue to strengthen its position in industries such as machinery and automobile manufacturing, sectors previously dominated by Germany, leaving German companies facing increasing pressure to innovate while maintaining profitability [19]. Such innovation has not been well supported by the government given their minimal amount of domestic support or subsidies. This growing competition, combined with the potential threat of tariffs, places Germany in a difficult economic position.

To address these looming economic threats, Germany must act to strengthen its domestic industries by changing their fundamental budgetary practices. Instead of maintaining a large budgetary surplus, Germany must invest heavily in both infrastructure and its domestic economy. This strategy is similar to that of the U.S., which has continuously maintained a budget deficit to funnel government spending into key economic sectors, thereby maintaining robust economic growth in those sectors [20]. Germany must provide similar support for their domestic industries by providing subsidies for these companies in order to remain competitive in the global supply chain. In addition, Germany should minimize regulatory practices for key industries, to help encourage domestic economic activity [21]. Germany is already taking steps to correct this through legislation recently implemented which loosened the debt limit within the nation, in the hopes that it could lead to increased domestic investment in the future. Such efforts are likely to face challenges, given that debt limits are enshrined within the German constitution [22]. 

As a response to potential tariffs, Germany must further leverage its position within the EU to provide an effective response to tariffs from the U.S. The EU is already considering a slew of retaliatory tariffs against the U.S., which can potentially serve as a bargaining tool in any trade negotiations with the latter [23]. Unifying trade policy with the rest of Europe could boost Germany’s negotiating power and therefore its ability to gain exemptions from any potential tariffs. In addition, regardless of the outcome of these tariffs, it is clear that Germany must protect itself from foreign economic influence by diversifying its trade partners and expanding its export markets into regions such as Asia, Latin America, and Africa in the future. In addition, a potential boost in domestic investment and industry support can also drive higher consumer spending, which paired with stimulatory fiscal policies, would help cushion the economy against the negative effects of potential tariffs. All of these policies require Germany to move in a completely different economic direction in the coming years, as it is clear that its deficit-averse fiscal policies cannot help support sustained domestic economic growth within the coming years.