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Pursuing a European approach to international trade policy—the agenda of the Kiel Institute calls for a robust EU response to geopolitical tensions, protectionism, and economic uncertainties. China's dominance in key industries, the looming threat of U.S. tariffs under Donald Trump, and Europe’s waning competitiveness require a unified European strategy. A strengthened single market and a strategic trade policy—one that fosters openness, liberalization, and new partnerships, e.g. with Africa—are essential to bolstering Germany’s and the EU’s resilience while maintaining parity with the U.S. and China in the long term.
China's increasing strength in key industries, Trump’s aggressive tariff policies, sluggish economic growth, and escalating geopolitical risks pose formidable challenges for the incoming German government. "From day one, the new administration will have to navigate stormy foreign trade waters," warns Moritz Schularick, President of Kiel Institute. "This agenda serves as a foreign trade compass for the new government."
A European response is the only viable answer to these global challenges, argue Schularick and nine other experts in the newly released Agenda of the Kiel Institute/https://www.ifw-kiel.de/publications/dealing-with-global-economic-challenges-an-.... Strengthening the EU single market, advancing European innovation, integrating climate policies, and responding swiftly and cohesively to Trump’s tariff threats will be crucial in counterbalancing China and the U.S.
As one of the world's three largest economies, alongside the U.S. and China, the EU disposes of significant market power. "A united EU can counteract trade restrictions and promote fair global competition," Schularick asserts. "But only a strong single market will ensure Europe’s standing on equal footing with the U.S. and China."
A confident stance between the U.S. and China
The re-election of Donald Trump and his plans for import tariffs pose a serious strain on transatlantic trade relations. In response, the EU must present a united front, enact targeted countermeasures, and increase defense spending (as demanded by Trump) as part of its strategic response.
At the same time, Europe must carve out its position between the U.S. and China. Rather than r engaging in sham solutions such as minimum prices or import quotas the EU should insist on the reduction of unfair subsidies and better protection of European companies against discrimination in the Chinese market. Critical infrastructure must be safeguarded, and the supply of essential raw materials secured. While Trump’s transactional approach to trade poses risks, it also presents opportunities. Europe should assert itself as a global leader in openness and liberalization—whether by forging new free trade agreements or strengthening strategic partnerships, particularly with Africa.
Catching up technologically with a strong innovation policy
This is all the more pressing given Germany’s economic slowdown and technological backlog. According to recent data from the Federal Statistical Office, gross value added in the manufacturing sector declined by 3% in 2024 compared to the previous year. This downturn is particularly evident in flagship industries like automotive manufacturing and mechanical engineering, which would be especially vulnerable to potential U.S. tariffs.
The authors of the agenda call for a comprehensive European innovation strategy and an integrated EU capital market. Apart from a clear strategy, closing financing gaps is paramount. "Investing in research and development is risky. We need investors willing to bear these risks," Schularick emphasizes. Governments must facilitate private risk financing within the EU single market, cutting bureaucracy and simplifying tax regulations to attract domestic and foreign venture capital.
The need for a European climate policy
Cooperation within the EU is also becoming increasingly important in climate policy. Germany, together with its European partners, should focus on reducing emissions within the Union. A stronger European framework would enable the EU to exert greater global influence through international agreements and trade relations. Expanding effective European climate instruments is thus imperative. At the same time, the German government must work to eliminate unnecessary regulations that conflict with market principles or impede efficient climate action.
Read more in the Kiel Policy Brief 182 " Dealing with Global Economic Challenges – An Agenda for the New Federal Government"/https://www.ifw-kiel.de/publications/dealing-with-global-economic-challenges-an-...:
• Global economic challenges after the election. Why the new German government must think and act European [Dirk Dohse, Holger Görg and Moritz Schularick]
• China's challenges to German key industries: proposals for action [Frank Bickenbach, Dirk Dohse, Wan-Hsin Liu]
• Trump's customs policy: consequences and options for action [Julian Hinz]
• Finding new partners with trade agreements [Rolf J. Langhammer]
• Be bolder! How Germany should benefit from intensifying the partnership with Africa [Tobias Heidland]
• Securing critical raw materials: Raw materials policy with a sense of proportion and foresight [Eckhardt Bode]
• Focus on European climate policy [Wilfried Rickels]
Media Contact:
Elisabeth Radke
Head of Outreach
T +49 431 8814-598
elisabeth.radke@ifw-kiel.de
Kiel Institute for the World Economy
Kiellinie 66 | 24105 Kiel | Germany
Chausseestraße 111 | 10115 Berlin | Germany
T +49 431 8814-1
E info@ifw-kiel.de
www.ifw-kiel.de
Dr. Dirk Dohse
Innovation and International Competition
T +49 431 8814-460
dirk.dohse@ifw-kiel.de
Prof. Dr. Moritz Schularick
President
T +49 431 8814-259
president@ifw-kiel.de
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