US tariffs: what the economy and consumers can expect now

What is in store for consumers?

The President of the European Commission, Ursula von der Leyen © Geert Vanden Wijngaert/AP/dpa

EU Commission President Ursula von der Leyen expects immense economic consequences. "Millions of people will be faced with higher food bills. Medicines will become more expensive, as will transportation. Inflation will rise. And this will particularly harm the economically weakest citizens," she says.

Michael Fratzscher, President of the German Institute for Economic Research (DIW), expects the new US tariffs to lead to strong inflation in the US, but not in Germany. "Even with similar counter-tariffs in Europe, I don't expect a sharp rise in prices here," he told the Funke Mediengruppe newspaper.

The German pharmaceutical industry warns of consequences for healthcare. According to the German Association of Research-Based Pharmaceutical Companies (VFA), medicines are exempt from the new US tariff package. However, this includes preliminary products such as sterile tubes that are used in drug production, said VFA Chief Economist Claus Michelsen.

According to the VFA, Germany imported pharmaceuticals worth 12.2 billion euros from the USA in 2024, as well as a good twelve percent of the precursors. Michelsen warned weeks ago that a trade war could lead to a sharp rise in the price of precursors or even a temporary shortage.

What threatens the German economy?

As an exporting nation, Germany is particularly affected by Trump's tariff offensive. The USA is Germany's most important trading partner, ahead of China and the Netherlands, and the largest buyer of German exports. In 2024, goods worth around 253 billion euros were traded between Germany and the United States. German companies delivered goods worth a good 161 billion euros to the USA, a good ten percent of all exports.

The Ifo Institute initially expects a permanent decline in GDP of 0.3 percent for the German economy, as trade expert Lisandra Flach writes - with some key sectors such as pharmaceuticals, automotive and mechanical engineering being hit harder. Commerzbank chief economist Jörg Krämer estimates that the high US tariffs will reduce German GDP by a total of half a percent over two years. The economy will stagnate in 2025.

DIW President Fratzscher, on the other hand, believes that Trump's global tariff package could drive Germany back into recession in 2025. The German Economic Institute (IW) has calculated that the new additional tariffs could cost Germany around 200 billion euros over Trump's four-year term of office. Germany's gross domestic product in 2028 would then be around one and a half percent lower than without tariffs.

The huge US tariff package and associated economic concerns put pressure on financial markets worldwide. The Dax fell significantly on the Frankfurt stock market. Prior to this, there had already been significant price losses on the stock exchanges in Asia.

Oil prices also fell sharply, while the flight to safe havens drove the price of gold to a record high. The US dollar, on the other hand, was under pressure against all other major currencies after the tariff hammer and did not benefit as a safe haven. In contrast, the euro gained significantly.

How important is the USA for key German industries?

The previously announced special tariffs of 25 percent will not only place a heavy burden on German car manufacturers. The USA is the most important export market for the German automotive industry.

The new US tariffs are dangerous for other key industries. In 2024, German mechanical engineering companies exported machinery and equipment worth 27.4 billion euros to the USA - a good 13% of total industry exports. And the chemical industry supplied products worth EUR 10.2 billion to the United States in 2024, a share of almost 8%. The US market is even more important for the German pharmaceutical industry: in 2024, goods worth 27 billion euros, or just under a quarter (23.6%) of German pharmaceutical exports, went to the USA, according to the VFA.

How is the EU reacting?

The EU is preparing countermeasures, but remains willing to talk. EU Trade Commissioner Maros Sefcovic wants to seek talks with the US side on Friday. "We are already finalizing the first package of measures in response to the steel tariffs and are now preparing further measures to protect our interests and companies if the negotiations fail," says EU Commission President Ursula von der Leyen. At the same time, she appealed to the US side to engage in talks. The aim must be to reduce trade barriers and not to increase them.

What countermeasures are planned?

Von der Leyen did not initially provide any details. However, according to information from Commission circles, they would include the introduction of far-reaching counter-tariffs. In addition, levies on digital services provided by US companies in the EU are being considered. They could affect Trump supporter Elon Musk's Platform X and companies such as Google, Amazon and Netflix. It has already been announced that the currently suspended special tariffs on US products such as jeans, bourbon whiskey, motorcycles and peanut butter will be reintroduced in mid-April. However, this is in response to the US special tariffs on steel and aluminum imports, which have already come into force.

What offers could the EU make in negotiations?

In addition to tariff reductions on goods such as US cars, new agreements are considered an option. According to the EU Commission, the EU and Trump could, for example, conclude a new deal to expand American exports of liquefied natural gas (LNG). "We still get a lot of LNG from Russia, so why not use American LNG instead, which is cheaper for us and lowers our energy prices," said von der Leyen last year. It would also be possible to import more military technology and agricultural goods.