Economics Update August 2025 - The apparent weakness of the EU offers opportunities

Let's start with a look back at history: for decades, the economic strength of the Federal Republic of Germany, and its industry in particular, was based on high productivity growth. The pressure to achieve ever greater productivity gains resulted, among other things, from the latent strength of the German mark, which in turn was the result of the Bundesbank's strictly stability-oriented monetary policy. For export-oriented companies, this led to a more or less continuous deterioration in their price competitiveness. They could only counteract this through continued productivity gains and innovation. Most companies took up this challenge and successfully mastered it. The fact that policymakers generally ensured adequate framework conditions was a necessary condition for overall economic success.

The deal on future tariffs in trade between the US and the European Union (EU) unilaterally disadvantages companies in the EU. While their US competitors will be able to import their products into the EU duty-free in future, exports from the EU to the US will become more expensive, generally by 15 percent. It is probably true that the EU Commission had no way of reaching a better agreement. Companies will therefore have to come to terms with this. Some of them will increase their production capacities in the US, but in many cases this will not be a viable option. Defending market share in the important US market therefore requires productivity gains that compensate as much as possible for the price disadvantage resulting from the tariff deal.

Europe has positive location factors

As described at the outset, this is by no means a hopeless endeavor. In terms of the overall conditions, Europe as a location also has a number of positive factors to offer: These include the high level of training of skilled workers and a high overall level of education—anyone who focuses more on building up production capacities in the US itself will be able to report on this. Infrastructure is also a plus point for Europe in many areas. In addition, political stability, reliable framework conditions, and legal certainty could become a greater competitive advantage for Europe than could have been imagined just a few years ago, given the erratic politics in the US.

What is clearly missing: politicians must focus on the essentials and act quickly and consistently. What needs to be done is on the table – for example, in the form of the Draghi report. In fact, since the new Commission took office, there has been a fundamentally correct shift in priorities towards improving competitiveness. What matters now, however, is speed of implementation. A current example: It is right for the European Commission to make appropriate proposals for the next EU budget. However, it would have been truly appropriate to say, in Trumpian fashion: We are not going to change our priorities in 2028, but right now – let's reach an agreement on this in the fall of this year and put the new budget into effect in January 2026. That would have been a clear statement that not only has the sign of the times been recognized, but that there is also the will and ability to act accordingly. If the deal that forced the EU to submit to Trump results in a change of approach here, the EU could benefit from it in the long term.