Trade war could cut German GDP more than 1%, economic institute says

BERLIN (Reuters) - A trade conflict based on blanket 25% tariffs could cut economic growth in Germany by more than 1 percentage point, according to calculations from an economic institute. That duty would reduce gross domestic product by 1.2% one year after coming into effect, according to the study by the IAB Institute for Employment Research on Friday.The number of employed people would be 90,000 lower and the number of people in the labour force would be 10,000 lower, the study showed, assuming flat tariff increases of 25%."A structural crisis and now a trade crisis on top of that: this is a blow for industry," said Enzo Weber, head of macroeconomics at IAB.

Its figures chime with the country's leading forecasting institute, which said this week the tariffs could put Germany on track for a third year of recession for the first time in post-war history.

The U.S. was Germany's biggest trading partner in 2024 with two-way goods trade totalling 253 billion euros ($277.84 billion), while China is its second biggest trading partner.

Germany, like most of the world, is now subject to a 10% tariff on its exports to the United States. But a 20% rate is still looming despite a 90-day pause.

Based on the German Economic Institute IW's use of a simulation tool known as the Global Economic Model of Oxford Economics, the huge tariffs currently in place between the U.S. and China alone would reduce German GDP by an average of 1.1% annually in the years 2025 to 2028, compared with a scenario without new tariffs.

China would emerge as the biggest loser from this escalation with a GDP decline of 2.9%, while the tariffs would mean a drop of 1.1% for the U.S., IW trade expert Galina Kolev-Schaefer said.

"We must not rest on our laurels during the tariff pause in the American-European trade dispute," Kolev-Schaefer said. "The conflict between the U.S. and China continues to rage, and this also has tangible consequences for the European Union."

(Reporting by Holger Hansen, Rene Wagner and Maria Martinez; Editing by Ludwig Burger and Alison Williams)