Germany in Focus: Navigating the Impact of U.S. Tariffs

Since January 2025, the U.S. has enacted a series of trade tariff measures, marking a seismic shift away from decades of multilateral trade liberalization the world had embraced. The tariffs were partly driven by the new U.S. administration’s beliefs that U.S. protectionism will boost American manufacturing and enhance government revenues, while geopolitically challenging its rivals, especially China.

For Germany, these measures became an issue when a 25% tariff on global steel and aluminium imports was announced, followed by a 25% tariff on automobiles and automobile parts from all countries. Since direct exports from Germany to the U.S. alone account for 2.5% of Germany’s GDP,¹ the impact of these tariffs is worth exploring. The chart below (Figure 1) shows the industrial sectors exported from Germany to the U.S. Highly dependent sectors include cars/vehicles (around 6% of Germany’s GDP), as well as machinery and pharmaceuticals (around 2% of Germany’s GDP),² while most other sectors have a lower dependency on the U.S. The knock-on effects of these tariffs are, therefore, highly sector correlated—car manufacturers and pharmaceutical industries risk reduced profitability and increased competition, while other sectors and the broader economy face less structural risk.

Figure 1: Exports from Germany to the U.S. in 2022, € billion

After a challenging last few years riddled by struggling economic growth, real estate fund net outflows and distress, Germany seems to have reached an inflection point. Following the recent coalition government agreement between the Christian Democratic Party (CDU) and Social Democrats (SPD), some political stability has been restored to the country after a period of uncertainty. With this stability, came a loosening of the historic debt brake with the announcement of a €500 billion infrastructure fund,³ as well as sizeable increases to defense spending from €52 billion in 2024 to €60 billion this year.⁴ Germany’s debt to GDP ratio at around 60%, is both historically low and relatively low compared to other major markets, and this expansionary fiscal policy has on balance been viewed as positive for the German economy rather than a cause for concern.

Germany’s turning point continued its positive trajectory when President Trump announced a 90-day pause on reciprocal tariffs on April 9, 2025, while also signing two directives aimed at reducing the tariff burden on automakers.⁵ Given the German automobile exposure to these tariffs as stated earlier, this policy change marks a pivotal shift in the trade consequences for those sectors in Germany. Combined with a loosened debt brake and increased government spending, this sparked a rally in the German equity markets, with the DAX nearly erasing April’s losses in May and outperforming peer benchmarks including the FTSE 100 and S&P 500 (Figure 2).⁶

Following these macro shifts, we made an upward revision of 40 basis points (bps) to Germany’s five-year GDP forecast in our latest House Views. Most of this growth is expected to be front-loaded, with strong growth in 2026 before stabilizing thereafter.

Figure 2: Global equity benchmarks

To understand the implications of these tariffs on real estate investments, we take a deeper look at the logistics sector in Germany. Trade tariffs threaten to impact more severely export gateways—cities like Hamburg with large seaports that serve as key logistics hubs. These markets were already impacted by stalled prime rent growth over the last few quarters.⁷ Supply chains will only be impacted by a reduction in trade to the U.S. (currently accounting for 10% of Germany’s total exports), but not by the remaining 90% of exports to other markets. Europe makes up around 67% of Germany’s exports, with Asia accounting for 16%—both larger than the U.S. and, therefore, provide potential upside to any rebalancing in trading partners and supply chains, should that occur in the future.⁸

While port cities like Hamburg and Bremen are more closely linked to global export markets, others such as Berlin and the Ruhr region are less exposed due to strong domestic demand, which is also reflected in the recent strength of prime rent growth in those cities relative to other submarkets. Berlin’s growing and diverse domestic consumer base makes it less dependent on international trade compared to manufacturing-heavy cities and industrial hubs like Stuttgart or Wolfsburg. The Ruhr region has benefited from strong infrastructure including excellent connectivity via motorways and rail, increasing its strength as a last mile logistics market.

These factors are reflected in our proprietary logistics scoring model (Figure 3), which looks at 76 submarkets across Europe and ranks cities based on different structural and growth indicators. Hamburg’s strength in this model comes from scoring in the top five as a global gateway market due to the scale of its seaport, which in the case of trade tariffs, increases its vulnerability as mentioned earlier. Berlin’s main strengths in the model stem from strong population and retail spending growth, which are domestic strengths allowing for continued resilience despite geopolitical volatility.⁹

Figure 3: Germany city ELS score

Though the rise of U.S. protectionist measures continues to weigh on global trade and impact large export markets like Germany, the picture within Germany is much more nuanced. The new German government’s expansionary fiscal policy, promising to invest significantly in infrastructure and climate protection, should also help to revive and rebalance its growth prospects in the medium term.

Our risk analysis showed that the greatest risks from U.S. tariffs impacted specific sectors rather than the economy as a whole. Industries such as automobiles and pharmaceuticals will experience greater risk due to their dependency on U.S. exports, as opposed to other sectors. The U.S. is just one of Germany’s trading partners. Germany’s exports to both Europe and Asia are higher than to the U.S. and potential exists for the trading ties to these higher share regions to expand. At a submarket level, highly export-oriented markets, like Hamburg and Bremen, face greater risk and should be monitored closely in the near-term, given continuing changes in U.S. trade tariff policies. Inland hubs, including the Ruhr region, are gaining traction due to their proximity to consumption centers and resilience to global trade disruptions. Other domestic-focused markets like Berlin, continue to benefit from domestic growth indicators which remain strong, increasing their resistance to trade disruptions. In this new geopolitical environment, Germany is expected to perform well given the changes in government fiscal policy, growing trading partner optionality and submarket strengths.