Tariffs on goods being imported into the US could tip Europe’s largest economy into another recession, according to the president of Germany’s central bank.
Germany economy has contracted for the past two years and with tariffs, the country “could expect a recession for this year” too, Joachim Nagel, the head of the Deutsche Bundesbank, told the BBC World Service in an exclusive interview.
Without tariffs, the bank forecasts the German economy will stagnate but still grow, by about 0.2%, he added.
He said “there are only losers” when imposing tariffs, and supported the EU’s retaliatory measures against US President Donald Trump’s 25% tariff on all steel imports from overseas.
Tariffs are a central part of Trump’s overall economic vision – he hopes they will boost US manufacturing and protect jobs, but critics say in the immediate term they will raise prices for US consumers.
In response to Trump’s move, the EU has hit back with import taxes on a range of US products, which are set to come into force on 1 April.
Mr Nagel called Trump’s tariff policy “economics from the past” and “definitely not a good idea”.
A global trade war is one of the concerns from tariffs and retaliatory tariffs, he said, but added it was a “necessity” for the EU to react “because if something is working against you, you can’t accept a policy like this”.
However, he suggested that when the US realises that the price that needs to be paid will be “highest on the side of the Americans”, it will allow further opportunity for all sides to come to a different resolution.
“I hope that in the end, good policy will succeed,” he said.
Germany’s export economy had been one of its strengths in past decades, and its cars such as BMW, Mercedes, Volkswagens and Audis are popular in the US.
Mr Nagel refuted claims that Germany was the “sick man of Europe”, saying it had a “strong economic basis” and “strong small and medium sized companies”.
“But nevertheless, when you are exposed to an export-oriented model, then you are more exposed in a situation when tariffs are going up and there are so many uncertainties, so many unknowns,” he added.
He said Germany could overcome such challenges “over the next couple of years”.
However, German consumers are set to face higher prices.
The head of Germany’s BGA federation of wholesale, foreign trade and service, Dirk Jandura, warned on Wednesday that Germans might have to dig deeper into their pockets to pay for American products, such as orange juice, bourbon and peanut butter, in supermarkets.
‘Tectonic changes’
Commenting on recent unprecedented changes in Germany’s economic policy, which were altered allow the country to borrow more to spend on defence and infrastructure, Mr Nagel said it was an “extraordinary measure” for an “extraordinary time”.
“The whole world is facing tectonic changes which makes the current situation very different from those seen in the past, hence the fiscal change,” he said.
He added the policy change would allow Germany some financial breathing room for recovery in the next few years, adding it provided a “stability signal to the market”.
