Trump's tariffs are putting pressure on the euro: Why Germany's export economy is now actually benefiting

Frankfurter Rundschau Trump's tariffs are putting pressure on the euro: Why Germany's export economy is now actually benefiting Nicola de Paoli • 6 hours • 3 minutes reading time The punitive tariffs against Mexico, Canada and China threatened by US President Trump would also damage the US economy, according to calculations by the Ifo Institute Euro is approaching parity with the US dollar Trump's tariffs are putting pressure on the euro: Why Germany's export economy is now actually benefiting Donald Trump's US tariffs against Canada, Mexico and China are putting pressure on the euro. It has lost value. But that is good news for exports. Washington/Berlin - The euro has lost value compared to the US dollar since Donald Trump was elected US president. The threat of tariffs against the important US trading partners Canada, Mexico and China did the rest to further increase the pressure on the euro. At the start of the week it was at 1.03 US dollars. That almost seemed like an announcement of what was to come. Analysts have been assuming for some time that the euro is approaching parity with the US dollar. A weak euro is partly seen as a disadvantage for the German economy because the raw materials for goods produced in Germany are often bought outside the eurozone and often enough in US dollars. But a weak euro is not bad news for the German economy. "A weaker euro is an advantage for German exporters," Jan Holthusen told the online portal Business Insider. It makes German goods cheaper in the USA and could even offset some of the disadvantages if Trump were to impose tariffs on EU goods as well. "If you assume that the USA imposes tariffs of ten percent on imports from Europe, a further devaluation of the euro would offset this effect," Holthusen calculates. There are several reasons for the weakness of the euro against the dollar One of the main reasons why the euro is losing value against the dollar is interest rates. Put simply, free capital flows to where it can best be invested, and that is currently the case in the USA. There, the key interest rates, as set by the central banks, are higher than in the Eurozone. This is because key interest rates are an important instrument for cooling the economy and thus reducing inflation, which is higher in the USA than in Germany, for example. Since higher interest rates are available in the USA, more money flows into US bonds. This requires US dollars. Higher demand for US dollars increases their value. The euro falls accordingly. A key factor is the plans of US President Donald Trump. He wants to significantly reduce taxes, especially for companies. This would cause national debt to rise. At the same time, import tariffs on goods from Canada or Mexico are likely to increase inflation. Ultimately, consumers - i.e. US citizens - pay a large part of the import tariffs, as goods from abroad become more expensive. In order to avoid higher inflation, the central bank there, the Federal Reserve, will maintain high interest rates. The USA is also the most important currency that investors look for in times of crisis. This function as a "safe haven" strengthens the USA in view of the current crises, conflicts and wars in the world. For this reason, the dollar is not only gaining significantly against the euro, but against most currencies. This is what the euro's weakness means for Germany The euro's decline has advantages and disadvantages for Germany. A weaker euro makes imports that are billed in dollars more expensive. This does not only include goods from the USA. Raw materials such as oil and gas are paid for and billed in US dollars around the world. Energy could therefore become more expensive in Germany, but travel to the USA could also increase in price. On the other hand, the weaker euro helps German industry. It makes exports from the euro zone cheaper for customers in the dollar zone. The USA is Germany's most important sales market outside the EU. This is why US tariffs are a major risk. The weaker euro could alleviate this somewhat.