Munich, 2 April 2025
Key Messages
- The average tariff gap for traded products between the US and the EU is around 0.5 percentage points, which is relatively low compared to other US trade partners.
- US tariff changes aimed at closing the tariff gap between the US and the EU could affect 53% of German exports to the US and 6% of German global exports. While a wide range of products would be affected, the tariff increase would remain relatively small for three quarters of traded products, as their tariff gaps are below 2.3%.
- ifo’s simulations show that higher US “reciprocal” tariffs reduce German exports to the US between 2.4% and 3.0% and decrease value added by 0.02%. These small effects for Germany, compared to scenarios with a flat 20% increase in US tariffs, are mostly due to the relatively low tariff gap between the US and the EU.
- However, the opposite scenario arises if the EU negotiates “full reciprocal tariffs” with the US – implying that the US also lowers tariffs when its own are higher. In this case, German value added and welfare increase.
Abstract
US President Donald Trump proposed implementing “reciprocal tariffs”, under which the US would raise import tariffs to match those imposed by its trading partners, further undermining the multilateral rules-based system. This policy brief examines the status quo of tariff differentials between the US and the EU and explores the implications of this policy for the German economy should it be implemented. The results indicate negative effects on both German exports and value added if “reciprocal” tariffs are introduced and/or if trading partners retaliate. German exports to the US fall by 2.4% to 3.0%. These relatively small effects for Germany compared to a scenario with an across-the-board 20% increase in US tariffs on all trading partners are mainly due to the relatively small tariff gap between the US and the EU compared to the larger gaps between the US and other trading partners.
The new reciprocal U.S. tariffs proposed by President Trump would likely reduce German exports to the United States by less than three percent.
The ifo Institute simulated the effects of these “reciprocal” tariffs, which assume the U.S. would raise duties on products to match the tariffs imposed by its trading partners on comparable U.S. goods. If the EU does not respond with countermeasures, German exports to the U.S. would decline by about 2.4 percent. According to Lisandra Flach, Director of the ifo Center for International Economics, “more than half of all German exports to the U.S. could potentially be affected”.
“The impact of reciprocal tariffs on Germany would be significantly smaller than that of a blanket U.S. tariff of 20 percent,” Flach explains. This is because the average tariff gap between the U.S. and the EU is relatively narrow—just 0.5 percentage points. In earlier simulations, the ifo Institute found that if the U.S. were to impose a 60 percent tariff on China and 20 percent on the rest of the world (including the EU), German exports to the U.S. would decline by around 15 percent.
Regardless of the economic impact, Flach considers the U.S. President’s new trade policy highly problematic: “This planned tariff increase marks a turning point and constitutes a frontal assault on the rules-based global trade order. Trump is undermining nearly 80 years of multilateralism,” she says.
If the EU succeeds in negotiating a mutual reduction of tariffs, this could have positive effects, according to the institute’s simulations. “If the EU were to negotiate fully reciprocal tariffs with the U.S., and Trump were willing to reduce duties accordingly, this would lead to an increase in German value creation,” says Flach. “Our findings highlight the crucial role of negotiations in preventing the adverse effects of a trade war.”
The calculations are based on the ifo Trade Model, which incorporates both tariffs and non-tariff trade barriers. The model covers 141 countries and 65 economic sectors, accounting for over 90 percent of global value added. The simulations also draw on comprehensive product-level tariff data to compute tariff differentials between the U.S. and its trading partners.
About the ifo Institute
The ifo Institute is one of Germany’s most influential economic research institutions and a key contributor to policy-oriented research in Europe. Based in Munich, the institute is widely recognized for its authoritative economic forecasts and data, including the monthly ifo Business Climate Index. It is a leading member of the Leibniz Association and a founding partner of EconPol Europe, a network for economic and fiscal policy research. Through its rigorous empirical analyses and close ties to policymaking circles, the ifo Institute plays a central role in shaping economic debate in Germany and beyond.