Amid Trump’s tariff war, Germany’s next leader keeps faith in free trade

BERLIN — Stop us if you’ve heard this one before: A German political leader on the eve of taking power promises that free trade is the answer to the country’s economic challenges.

The approach worked for decades after World War II, as the export-driven Wirtschaftswunder propelled the then-West Germany to unparalleled prosperity.

Now, even as President Donald Trump launches the biggest trade war in a century, Germany’s next chancellor, Friedrich Merz, is betting that Europe can still do a free-trade deal with the United States. One which it can negotiate, moreover, from a position of strength.

“The best thing we can do is all work together to achieve zero tariffs on transatlantic trade. Then the problem will be solved,” Merz said in an interview on TV channel RTL after his Christian Democratic Union (CDU) agreed last week to form a coalition government with the Social Democrats (SPD).

For Merz, the trade headwinds blasting across the Atlantic couldn’t come at a worse time, with Europe’s largest economy facing a third year of recession. 

On top of that, as the EU’s leading exporter, Germany and its auto industry are most exposed to Trump’s universal tariffs — 10 percent on most goods, along with 25 percent levies on steel, aluminum and cars. (Trump last week paused a higher, discretionary tariff of 20 percent against the EU for 90 days to open the way for trade talks.)

Merz, 69, has made long careers in both business and politics as a champion of the $1.6 trillion transatlantic trading relationship and the NATO alliance — which was conceived to keep America engaged in Europe while keeping Germany “down” and allowing it to grow into an export powerhouse. The trained lawyer headed the Atlantic Bridge, a German nonprofit, for a decade, and among other roles chaired the German arm of U.S. investment giant Blackrock.

A transatlantic free-trade deal was a central economic policy pitch that Merz made on the election campaign trail. His incoming government’s policy pact strives for an FTA with the U.S. “in the medium term,” while in the near term seeking to avoid a trade conflict and to secure the reduction of import duties.

At the same time, Merz has sought to project an image of strength and resolve toward Washington. “The key message to Donald Trump is: Germany is back on track,” he said in English as he unveiled the coalition deal.

The mixed signals are impossible to miss.

“Merz seems to be wavering in recent weeks,” U.S. expert Laura von Daniels, from the German Institute for International and Security Affairs, told POLITICO. The incoming chancellor, she said, alternates between advocating closer U.S. ties and warning Brussels to brace for the end of Trump’s NATO protection, while vowing European independence.

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Merz is finally ascending the summit of German power after decades in the political wilderness. He made a name for himself in the 1990s as a fiscal hawk, only to be sidelined by the centrist Angela Merkel, who went on to rule for 16 years.

He finally claimed the top job in the CDU on his third attempt at the end of 2021, going on to lead the party to a weak victory in the Feb. 23 general election with less than 30 percent of the vote.

Despite their long years in opposition, Merz and his advisers appear to have few ideas on how to address the vulnerabilities of Germany’s export-oriented economy in a world where China is already a systemic rival and the United States is turning hostile.

Yes, in throwing more than €1 trillion at upgrading Germany’s decaying infrastructure and rearming, Merz is trying to create a domestic driver for growth. But when it comes to dealing with the rest of the world, his thinking on trade resembles Germany’s postwar golden age.

“I actually had the feeling with the U.S. chapter [of the coalition pact] that it wasn’t a description of reality at all,” Claudia Major, a foreign and defense analyst with the German Institute for International and Security Affairs, told POLITICO’s Berlin Playbook Podcast. “It’s more of a prayer. It’s almost like an invocation of the past that we all know isn’t coming back.”

A free-trade deal “is wishful thinking in the current global situation,” Sandra Detzer, a lawmaker from the opposition Green party, told POLITICO. 

The art of the deal

So far, Trade Commissioner Maroš Šefčovič — who negotiates on behalf of the 27 member countries that form the EU’s single market — has not managed to de-escalate tensions in three rounds of talks with Trump administration officials.

A Commission statement on Šefčovič’s latest talks in Washington on Monday called on the U.S. to take the bloc’s offer to negotiate on tariffs seriously. “As with every negotiation, this must be a two-way street / two-way engagement, with both sides bringing something to the table,” said Commission trade spokesperson Olof Gill.

Trade experts say that a deal recalling the ambition of the Transatlantic Trade and Investment Partnership (TTIP), where talks foundered nearly a decade ago, is today out of reach.

“We no longer live in a world in which trade experts spend years negotiating the details of individual chapters in conference rooms in Brussels and Washington,” von Daniels said. 

“These days, it’s more about sectoral deals — narrow agreements, not mega-deals,” added Julian Hinz, an economics professor at the University of Bielefeld who also leads research on trade at the Kiel Institute for the World Economy.

Merz seems to have gotten the memo, in recent days dialing back his calls for a broad FTA and instead backing a proposal by European Commission President Ursula von der Leyen for a narrower deal with the U.S. to cut tariffs on industrial goods to zero.

To even have a chance of achieving that, he would need to foster ties with other EU members — and to sell France’s protectionist elite on the idea of freer trade with the rest of the world. “The number of countries contacting us and saying: 'We want to conclude free trade agreements with you very quickly,' has never been as high as it is now. So let’s do it!” Merz told TV interviewer Caren Miosga on Sunday.

Merz will also need to exert his influence to prevent Trump from picking off other European leaders with offers of sweetheart deals. 

The American president “is trying to divide the Europeans,” said Sebastian Roloff, a lawmaker who negotiated the economic parts of the coalition agreement on behalf of the Social Democrats.

Subject to both the CDU and the SPD approving the coalition agreement, Merz hopes to be elected chancellor May 6. He is due to fly to Paris the next day for talks with French President Emmanuel Macron, according to sources familiar with the matter. 

Trade — whether free or not — will be on the agenda.

Koen Verhelst and Clea Caulcutt contributed reporting. Graphic by Giovanna Coi.