Weak Dollar Threatens German Exports: Merz Urges Critical US Trade Deal Honor

BERLIN, Germany – February 2025. German opposition leader Friedrich Merz issued a stark economic warning this week, declaring that a persistently weak US dollar directly threatens the competitiveness of Germany’s vital export sector. Consequently, he urgently called upon the United States to honor existing trade agreements, highlighting a growing transatlantic economic friction point.

Weak Dollar Puts German Export Engine at Risk

Friedrich Merz, leader of the Christian Democratic Union (CDU), articulated a concern shared by many German industrialists. Specifically, the euro’s relative strength against the dollar makes German goods more expensive for American buyers. This currency dynamic erodes the price advantage of Germany’s famed manufacturing sector. For instance, machinery, automobiles, and chemical products face stiffer competition. The Bundesbank’s latest trade data shows a concerning trend. German exports to the United States grew by only 1.2% in the last quarter of 2024, a significant slowdown from previous years.

Furthermore, the euro-dollar exchange rate has hovered near 1.15 for several months. This represents a multi-year high for the euro. Economists at the ifo Institute for Economic Research confirm the impact. “A 10% appreciation of the euro against the dollar typically leads to a 2-3% reduction in export volume to the US within a year,” noted a recent institute report. This mathematical relationship underscores the tangible risk to an economy where exports constitute nearly 47% of GDP.

The Mechanics of Currency and Competitiveness

Currency valuation acts as a silent tariff. When the euro is strong, an American company must spend more dollars to purchase a German-made industrial robot. Therefore, they may seek alternatives from South Korea or Japan, where currencies might be weaker. This shift in purchasing decisions happens gradually but decisively. The German Chamber of Commerce and Industry (DIHK) recently surveyed over 3,000 export-oriented firms. Alarmingly, 68% cited unfavorable exchange rates as a primary business risk for 2025.

Merz Calls for US Adherence to Trade Agreements

Merz’s statement extends beyond currency commentary. He explicitly urged the United States to “honor the spirit and letter” of bilateral and multilateral trade deals. This call references ongoing tensions. For example, disputes linger over the U.S. Inflation Reduction Act’s (IRA) subsidies for domestic green technology. German and European officials argue these subsidies disadvantage EU producers. They potentially violate World Trade Organization (WTO) principles of non-discrimination.

Moreover, the EU-US Trade and Technology Council (TTC), established to coordinate policy, has faced hurdles. Progress on aligning standards and reducing trade barriers has been slower than anticipated. Merz framed this not as a request for special treatment but for predictable, rules-based engagement. “Reliable frameworks are the bedrock of global trade,” he stated during a press conference in Berlin. Historical data supports this view. Periods of stable trade relations between 2010 and 2016 correlated with stronger export growth for both economies.

Key Points of Contention in EU-US Trade:

• Inflation Reduction Act (IRA) Subsidies: Local content requirements for electric vehicles and batteries.
• Steel and Aluminum Tariffs: Although a truce exists, the threat of reinstatement creates uncertainty.
• Digital Services Taxes: Differing approaches to taxing large tech companies.
• Data Privacy Standards: GDPR vs. US regulations creating compliance complexities for businesses.

Broader Economic Context and Global Impacts

The weak dollar is not an isolated phenomenon. It stems from complex global factors. The U.S. Federal Reserve’s potential interest rate cuts in 2025, aimed at managing domestic growth, can weaken the dollar. Simultaneously, the European Central Bank (ECB) maintains a cautious stance on inflation. This policy divergence directly influences the exchange rate. Analysts at Deutsche Bank predict continued volatility in currency markets throughout the year.

This situation has ripple effects across the global supply chain. A German auto parts supplier losing business may, in turn, reduce orders from its own suppliers in Eastern Europe. The International Monetary Fund (IMF), in its January 2025 World Economic Outlook update, slightly downgraded growth forecasts for export-dependent European economies. It cited “external demand weakness and currency headwinds” as contributing factors.

Expert Perspectives on the Way Forward

Trade policy experts emphasize dialogue. Dr. Claudia Schmucker, Head of the Globalization and World Economy Program at the German Council on Foreign Relations (DGAP), suggests a dual approach. “While monetary policy is set independently, diplomatic channels must reinforce the mutual benefits of stable trade,” she explained in a recent analysis. Additionally, German firms are advised to hedge currency risks and innovate. They must enhance the non-price value of their products through superior technology and service.

Conclusion

Friedrich Merz’s warning about the weak dollar and German exports highlights a critical vulnerability in the interconnected global economy. The strength of the euro presents a clear challenge to Germany’s export-driven model. More broadly, his call for the US to honor trade deals underscores the importance of international cooperation and rule consistency. Ultimately, navigating these currency and trade tensions will require sustained diplomatic engagement and economic adaptability from both sides of the Atlantic. The health of the German export economy, and by extension much of Europe’s industrial base, may depend on it.

FAQs

Q1: Why does a weak dollar hurt German exports?
A weak dollar means the euro is stronger. Consequently, American importers need more dollars to buy goods priced in euros, making German products more expensive and less competitive in the US market.

Q2: What specific trade deal is Friedrich Merz referring to?
Merz is likely referencing the broader framework of EU-US trade relations, including understandings within the Trade and Technology Council (TTC) and commitments under World Trade Organization (WTO) rules, rather than one single treaty.

Q3: How does the US Federal Reserve influence the dollar’s strength?
When the Fed lowers interest rates, it can reduce the yield on US assets for foreign investors. This often leads to a decrease in demand for dollars, weakening the currency’s exchange rate.

Q4: What can German companies do to mitigate this risk?
Companies can use financial instruments like forward contracts to lock in exchange rates, diversify their export markets beyond the US, and focus on high-value, technologically advanced products where competition is less price-sensitive.

Q5: Is this issue only between Germany and the US?
No, while Germany is Europe’s largest exporter, a strong euro affects all Eurozone countries that export to the United States. It is a Eurozone-wide economic concern with particular impact on manufacturing-heavy economies.