Summary by Bloomberg AI
- German Chancellor Friedrich Merz is preparing for his first visit to the White House, with investors backing him to lead an economic resurgence driven by a major program of spending on infrastructure and defense.
- However, obstacles include Donald Trump’s grudge against Europe’s biggest economy and concerns that Germans may not have the stomach to deliver on Merz’s vision, with some executives in industrial regions seeing few signs of a turnaround.
- The German economy is facing challenges, including a decline in manufacturing, job cuts, and a sense of resignation, with Trump’s America First agenda potentially making things worse and German industry seeing job cuts accelerate.
By Jana Randow and Marilen Martin
06/05/2025 03:58:50 [BN]
(Bloomberg) — As German Chancellor Friedrich Merz prepares for his first visit to the White House Thursday, investors are backing him to lead an economic resurgence, driven by a major program of spending on infrastructure and defense.
But there are two obstacles standing in the way. One is Donald Trump himself, who has harbored a grudge against Europe’s biggest economy since his first term in office. The other is that some executives in the country’s industrial regions are seeing few signs of a turnaround and they worry that Germans don’t have the stomach to deliver on Merz’s vision.
“Very few new things are emerging, and that fuels pessimism,” said Melanie Arntz, vice director of the Institute for Employment Research in Nuremberg.
Amid the upheaval unleashed by Trump’s return to office in January, Merz followed up his narrow election victory by pushing through constitutional reform to allow perhaps as much as €1 trillion ($1.1 trillion) of new borrowing. That helped to make Germany the market of choice for funds seeking exposure to the European revival and diversifying portfolios out of the US. The large cap benchmark DAX index has surged 22% this year and is the best performing major index globally.
“Germany because of their size and scale and their prominence in the European marketplace, they are a leader,” Jim Zelter, president of Apollo Global Management LLC, said in a Bloomberg Television interview Wednesday. “It’s a palpable change that we want to be a part of.”
But some of the small business owners that form the backbone of Germany’s economy suggest the investors may be getting ahead of themselves.
Take Karsten Vogt.
The 50-something executive is thinking about shuttering Langen Feuerungsbau, the manufacturing company his great-grandfather founded in the 1930s, rather than re-engineer the firm to weather an increasingly hostile global economy. Vogt’s family-owned company in Duisburg, the cradle of Germany’s steel industry, makes fire-resistant doors for power, waste incineration and biogas plants around the world. But demand is dwindling as clients shift to new technologies.
“I don’t plan to reinvent myself in the final decade of my working life,” Vogt said in an interview. “I’ve gone through it twice and I think that’s enough. It’s exhausting.”
Vogt describes the challenges of navigating change and a sense of resignation that permeates the economy around Duisburg. Major steel producers in the region like ThyssenKrupp and ArcelorMittal are already facing massive layoffs and potentially even plant closures.
German industry has seen job cuts accelerate and is currently losing about 10,000 posts a month, Arntz says. Meanwhile, consumer confidence has never recovered from the double blow of the pandemic and Russia’s war in Ukraine, unemployment jumped by the most in almost three years in May, and Merz’s party is fighting to maintain its lead over the Alternative for Germany, or AfD, in the polls.
Trump’s America First agenda could make all that worse as the president aims to punish countries such as Germany for what he calls “unfair” practices that take advantage of US companies and workers. Decades of relying on exports to drive growth means this could spell trouble for Europe’s biggest economy.
“I want German car companies to become American car companies, I want them to build their plants here,” Trump said on the campaign trail in September.
Since then, he’s continued to needle the German government, with Vice President JD Vance meeting AfD candidate Alice Weidel just before the election and Secretary of State Marco Rubio labeling efforts to monitor extremist groups “tyranny in disguise.”
Amid the whiplash of his trade policy, the European Union is currently facing 50% tariffs on most exports to the US, due to kick in on July 9 unless a settlement is reached. That measure will hammer German carmakers who sold $25 billion of vehicles in the US last year. In response, Mercedes-Benz Group AG has announced plans to move production of another model to Alabama.
More may follow, with Commerce Secretary Howard Lutnick telling senators Wednesday that auto manufacturers had offered additional US investments in a meeting with Trump. The US sent trading partners a letter reminding them that it expects countries to offer concessions ahead of Trump’s July 9 deadline, and the president already moved to double steel and aluminum tariffs earlier this week, to the chagrin of European leaders.
“We can see what Donald Trump has triggered,” said Werner Schaurte-Küppers, president of Duisburg’s chamber of commerce. “Our hopes are now pinned on the German government and that it will show the will to act quickly.”
German manufacturing has been declining steadily since as far back as late 2017 and the overall economy has shrunk for the past two years following the energy-price shock triggered by the war in Ukraine.
Voters went to the polls in February, just after Trump returned to office, with a growing sense that chronic problems are building to an emergency.
The new legislative period may offer “the last chance” to regain citizens’ trust “in the political parties of our democracy,” Merz said in the aftermath of his election win that saw the far-right AfD emerge as the main opposition party.