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Germany gears up for Trump 2.0

Trent Murray in Berlin

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02:06

The return of U.S. President Donald Trump to the White House has Europe's biggest economy on edge amid concerns over a bumpy road ahead for the U.S.-German relationship. Whether it's talk of tariffs, defense spending or support for Ukraine, lawmakers in Berlin have paid close attention to the combative rhetoric of the newly inaugurated President, and are aware he may have Europe in his sights.

Trump's threats of a 20 percent tariff on EU exports has rattled German industry. Independent analysis has suggested that if he moves forward with such a plan, it could cost Germany $185 billion in lost growth over the next four years, cause German exports to the U.S. to fall by 15 percent and threaten 300,000 jobs.

Given trade policy remains in the remit of the European Union, Brussels has sought to alleviate concerns about the new administration in Washington.

"We need to be very clear about the facts here," said Olaf Gill, EU spokesperson for economic security.

"The facts are the U.S. and EU have deeply integrated economies with overall balanced trade and investment. The EU has a substantial trade in goods surplus while the U.S. has substantial trade in surplus in services vis-a-vis the EU. That is not always reflected," he said.

German Chancellor Olaf Scholz has struck a similar tone, saying conversation over confrontation should dictate how Europe deals with concerns over trade deficits.

According to Scholz: "I don't think we should speculate too much on this issue with the U.S. The EU has the competencies to do what is necessary. But we should all very clearly seek talks. My position on this issue is very, very clear: we do not support protectionism. We believe the world is a better place with more prosperity if there can be fair and free trade."

U.S. President-elect Donald Trump, and JD Vance, walk on stage before taking their oaths of office during the Inauguration ceremonies. /Morry Gash/Pool
U.S. President-elect Donald Trump, and JD Vance, walk on stage before taking their oaths of office during the Inauguration ceremonies. /Morry Gash/Pool

U.S. President-elect Donald Trump, and JD Vance, walk on stage before taking their oaths of office during the Inauguration ceremonies. /Morry Gash/Pool

Having just recorded two consecutive years of contraction for the first time since 1950, the German economy remains fragile - estimates for 2025 are forecast a meagre growth target of only 0.2 percent. It leaves little wriggle room for further economic headwinds, meaning that as the new Trump Administration takes shape, finding a way to avoid tariffs will undoubtedly remain a high priority not just for the new government in Berlin, but Brussels and the EU more broadly.

On defense, U.S. commitment to NATO under the new Trump administration is also under the microscope. While Germany is spending more on its military compared to his first term, its recent push to hit 2 percent of GDP on defense funding may not be enough. The new U.S. administration has signaled it won't put up with any 'free-riding' off the back of the U.S., as Trump has described it.

The conflict in Ukraine could also prove to be a contentious issue between the NATO allies. After the U.S. Germany is the second biggest military supporter of Kyiv; if Trump decides to make good on his campaign pledges to pull back American support, it could leave Germany with the task trying to fill the gap.

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