US tariffs could deepen Germany's recession, says bank

The head of Germany's central bank has stated that U.S. tariffs on imported goods could push Europe's largest economy into another recession. The German economy has already contracted over the past two years, and adding tariffs to the equation, Bundesbank President Joachim Nagel said in an interview with BBC World Service that Germany "might face a recession this year as well."

Nagel added that without the tariffs, the Bundesbank forecasts that the German economy will stagnate but still grow by about 0.2%. He believes that imposing tariffs "will only make losers of everyone" and supports the retaliatory measures taken by the European Union against U.S. President Donald Trump's 25% tariff on all overseas steel imports.

Tariffs are a core component of Trump's overall economic vision—he hopes they will boost U.S. manufacturing and protect jobs, but critics say that tariffs will raise prices for American consumers in the short term. In response to Trump's move, the EU has imposed import taxes on a range of American products, and these tariffs are scheduled to take effect on April 1.

Nagel called Trump's tariff policy "economics of the past" and "definitely not a good idea." He said a global trade war is one of the concerns arising from tariffs and retaliatory tariffs, but he added that it was "necessary" for the EU to react, "because if something is bad for you, you cannot accept such a policy."

However, he stated that when the U.S. realizes that the price to pay "is the highest on the American side," this will provide a further opportunity for all parties to reach a different solution. "I hope that at the end, good policies will succeed," he said. Germany's export-oriented economy has been one of its strengths for decades, and its cars, such as BMW, Mercedes, Volkswagen, and Audi, are popular in the United States.

Nagel dismissed the notion of Germany as the "sick man of Europe," saying it has a "strong economic base" and "strong small and medium-sized enterprises." He added: "But nevertheless, when you face an export-oriented model, when you face rising tariffs, and when there is so much uncertainty and unknown factors, you are more vulnerable." He expressed confidence that Germany can overcome these challenges "in the coming years." However, German consumers will face higher prices.

Dirk Jandura, president of the Federation of German Wholesale, Foreign Trade and Services (BGA), warned on Wednesday that Germans may have to shell out more money in supermarkets for American products such as orange juice, bourbon whiskey, and peanut butter. Commenting on the recent unprecedented changes in German economic policy, Nagel said that allowing the country to borrow more money for defense and infrastructure construction is a "very special measure for very special times."

"The whole world is facing structural changes, which makes the current situation very different from the past, hence the fiscal changes," he said. He added that the policy change will provide Germany with some fiscal breathing room for recovery in the coming years, adding that it "sends a stable signal to the market."