Small and Medium Enterprises (SMEs) in Germany expressing worry over potential indirect consequences of US tariffs

A Looming Shadow: Indirect Consequences of US Tariffs Worry German SMEs in Key Industries

US Tariffs Cause Chief Worries for Most German Small-Scale Enterprises Over Secondary Impacts - Small and Medium Enterprises (SMEs) in Germany expressing worry over potential indirect consequences of US tariffs

German small and medium-sized enterprises (SMEs) are bracing for a potential hit as they grapple with the possible repercussions of US tariffs, particularly in the metal, automotive, and machinery sectors. These industries, says DZ Bank, are likely to be impacted by the business of their trading partners being affected by US tariffs, leading to negative consequences for their own businesses.

While a worrying number of companies, around two-thirds, anticipate indirect negative effects, only 29% express concern about US tariffs. However, it's the potential EU counter-tariffs that might pose a bigger threat to these businesses, since they could prove more detrimental than the actual import duties in the US. Nearly 29% expect direct consequences, such as higher purchase prices, while a mere 19% foresee no negative consequences.

Claus Niegsch, an analyst at DZ Bank, offers a glimmer of optimism, suggesting that fear of higher costs could be premature. He posits that as US goods become more expensive, goods initially destined for the American market might instead flood Europe, potentially lowering prices here.

The study, conducted by DZ Bank, surveyed over a thousand owners and managers of German SMEs between March 6 and March 26. At the time, the exact level of tariffs on EU goods was still undecided, though a 25% tariff demand for the automotive sector had already been floated, as were taxes of 25% on steel and aluminum, which had been enforced since March 12. The survey is said to be representative of the SME landscape.

• Indirect Consequences for SMEs: Tariffs can have profound, indirect effects on SMEs, such as weakening economic activity, financial market volatility, and reducing demand.
• Sector-Specific Challenges: The metal, automotive, and machinery sectors stand to face additional challenges due to increased raw material costs, reduced exports, and supply chain disruptions.
• Supply Chain Disruptions and Geopolitical Tensions: Global trade and supply chains can be disrupted by tariffs, leading to delays, increased costs, and a more fragmented business environment.
• Regulatory and Legal Challenges: Increased regulatory nationalism and protectionism can result in new legal challenges, forcing SMEs to navigate digital taxes, data laws, and escalating EU-US trade tensions.

Germany's SMEs find themselves in a precarious position, with the predicted indirect consequences of US tariffs looming large. These challenges, reflecting broader economic and trade dynamics, may stifle business growth strategies, affect competitiveness, and pose long-term threats to the industries surveyed.

• Indirect Consequences Beyond Industrial Sectors: The repercussions of US tariffs extend beyond key industries, potentially affecting employment policies and job security in EC countries, given the potential for economic instability, financial market volatility, and reduced demand.
• Impact on Employment Policy in Europe: With an uncertain global economic climate and potential EU counter-tariffs, SMEs may face hiring freezes, layoffs, or reduced wages in an attempt to cut costs and maintain profitability, leading to higher unemployment rates.
• Employment Policy Shifts in Manufacturing and Finance: Industries such as manufacturing and finance might be compelled to reevaluate their employment policies, adapting to increased operational costs, reducing workforces, or becoming more efficient to counteract the negative effects of US tariffs.
• Policy and Legislative Adjustments: To remain competitive and protect jobs, employment policies in EC countries may need to be revised in response to the changing industry landscape and geopolitical tensions caused by tariffs, war-and-conflicts, and policy-and-legislation shifts.

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