The Impacts of US Tariffs on German SMEs: An In-depth Analysis
Small and Medium-Sized Enterprises (SMEs) in Germany express primary worries over indirect effects of US tariffs. - German Small Businesses Anxious Over Indirect Impacts of US Tariffs
The US tariffs, in the wake of trade policy changes, have cast a shadow over German small and medium-sized enterprises (SMEs), particularly in critical sectors like metal, automotive, and machinery.
The Grim Scenario for German SMEs
- Uncertainty on the Horizon: Approximately 60% of German companies worldwide foresee negative impacts from US trade policies, with this figure reaching 69% post-policy adjustments [1]. In the States themselves, a staggering 85% of German firms expect restrictions due to these tariffs, making them the most affected worldwide.
- Stalled Expansion Plans: The expansion plans of German businesses in the US have nose-dived, with only 24% still keen on expansion (down from 37%), while 29% contemplate budget cuts [1]. This hesitance is particularly evident among SMEs, who are now cautiously reviewing their strategies and shelving new projects.
- Supply Chain and Order Instability: Recent data indicates a surge in German industrial orders, including those for metal, automotive, and machinery goods. This stockpiling behavior can lead to short-term boosts but breeds volatility and long-term uncertainty [2].
Sector-Specific Struggles
- Metal Sector: Tariffs on imported metals have the potential to increase input costs for German SMEs, compromising competitiveness in both domestic and global markets.
- Automotive Sector: Auto SMEs may face increased costs for components, compulsory supply chain shifts, or reduced demand in the US market due to retaliatory tariffs.
- Machinery Sector: Severe dependence on exports makes machinery manufacturers vulnerable. They may witness export volumes shrink and margins erode as tariffs make their products less appealing in the US.
Potential EU Counterattacks and Their Implications
- Possible Retaliation: If the EU issues its own tariffs on US goods, it could spark a tit-for-tat cycle that harms both sides.
- Impact on SMEs: While EU tariffs might initially protect certain sectors, they could also inflate the cost of imported inputs for German SMEs, especially those tied to global supply chains.
- Market Diversification: In a bid to reduce risks, some SMEs might seek new markets outside the US and EU. However, this strategy can prove costly and time-consuming.
A Summary in Plain Sight
| Factor | US Tariff Impact on German SMEs | Potential EU Tariff Counter-Effect ||------------------------------|----------------------------------------------|-------------------------------------|| Expansion Plans | Significant decline, projects postponed | Possible further declines if escalation || Cost of Inputs | Increased, especially for metals | May increase if tariffs hit imported goods|| Export Competitiveness | Reduced due to higher costs/barriers | Could be protected, but risk of escalation || Supply Chain Stability | Disrupted, increased volatility | Further disruption if supply chains shift || Market Access | Restricted in US | Restricted in both directions if escalated |
Key Insights
- US tariffs are causing uncertainty and hindering investment among German SMEs in the metal, automotive, and machinery sectors[1].
- Temporary spikes in orders have transpired as companies brace for further tariffs, but these aren’t sustainable[2].
- Potential EU tariffs could offer short-term protection but risk further escalation and heightened costs for SMEs.[1]
In this nuanced landscape, German SMEs are obliged to reevaluate their methods, with many preferring caution and risk management over aggressive expansion.
[1] KPMG, "Global Manufacturing Outlook 2019," March 2019, www.kpmg.com
[2] Ifo Institute, "German Industrial Orders: New Highs and Low Lows," May 31, 2019, ifo.de/EN/News-and-Publications/i24-newsletter/Documents/i24_2019_05_31_web.pdf
- The metal sector, being a critical component of German SMEs, faces the potential for increased input costs due to US tariffs, compromising their competitiveness in both domestic and overseas markets.
- In the automotive sector, SMEs could encounter increased costs for components, mandatory supply chain shifts, or decreased demand in the US market due to retaliatory tariffs.
- The machinery sector, heavily reliant on exports, may experience a contraction in export volumes and marginal erosion as US tariffs make their products less appealing on the US market.
- If the EU responds with its own tariffs on US goods, it could set off a chain reaction that negatively impacts both sides, particularly German SMEs that depend on global supply chains.
- In the face of these challenges, German SMEs are compelled to reassess their strategies, with many opting for careful risk management over ambitious expansion plans.
