An economic power in decline
With the chemical industry in crisis, another central pillar of the German economy is crumbling. The main causes: abandoning cheap Russian energy and accepting Trump’s imposition of duty-free imports from the US.
BRUSSELS/BERLIN (own report) – Following the automotive and steel industries, the chemical industry – another key economic pillar of the German economy – is in trouble. Reports of crisis and collapse in the sector are becoming increasingly urgent. Business analysts say the output of Germany’s chemical industry shrank by around 5 per cent in the second quarter of 2025. They note that overall production is currently at “the lowest level since 1991”. The industry faces pressures not only from cheap imports from China but, above all, from the EU’s current tariff deal with Washington. The Trump administration has forced the European Union to reduce its tariffs on US imports to zero. US chemical products can now outcompete German-made chemicals. These pressures come on top of the cost impact suffered by the German chemicals sector after losing Russian energy. Having opted out of low-cost pipeline-supplied Russian gas, chemical producers lack a key advantage behind its longstanding competitiveness. Reports of crises are coming from other sectors, too. Indeed, German industrial production overall slumped by as much as 5.6 per cent in August on the previous month. In response, the EU is now resorting to protectionist tariffs against non-US suppliers.
‘Others are growing’
New data from the Federal Statistical Office, made available on Wednesday, only confirms the gloomy state of German industry. According to these figures, manufacturing output fell by 4.3 per cent in August compared with the previous month. In the category of industrial production alone, i.e. excluding energy and construction, the decline was as much as 5.6 per cent.[1] Observers have pointed to the caveat that an unusually large number of automotive companies scheduled their annual holidays for August this year, which downwardly distorts the production figures. However, even without the automotive sector, production shrank by around 2.5 per cent. In the important mechanical engineering sector, output slumped by as much as 6.2 per cent. And there is no improvement in sight. In August, the value of orders declined by 0.8 per cent on the previous month, making it the fourth month in a row with fewer orders month on month. The new US tariffs, which have made all kinds of exports unprofitable, are considered to be a major cause of the rapid decline. Industrial weakness is a key factor behind the German government’s decision on Wednesday to lower its growth forecast for 2025, now put at just 0.2 per cent. Previous years had already seen a steady fall in the Federal Republic’s economic output: by 0.3 per cent in 2023 and 0.2 per cent in 2024. Federal Minister for Economic Affairs Katherina Reiche noted a sharp contrast: “Other economies are growing.”[2]
A downward trajectory
The German government is responding to the slump in production with a series of crisis meetings with industry executives. Yesterday, for example, an “automotive summit” was held at the Federal Chancellery to seek solutions to the dramatic situation facing the automotive industry. The sector has already lost around 112,000 jobs since 2019, including around 51,500 last year alone. Further job cuts are imminent. Volkswagen will reduce its workforce by up to 35,000, Daimler by around 5,000. And automotive suppliers are making huge cuts – Bosch shedding 13,000 jobs, ZF up to 7,600.[3] One obvious reason for this crisis is the transition to electric mobility, for which German automotive companies have poorly prepared. They remain way behind their Chinese competitors. The Federal Chancellery has also announced a crisis meeting with representatives of the steel industry for October. The steel industry also suffers from deep structural problems which are, again, exacerbated as the industry was singled out for particularly severe US tariffs. Steel exports to the US are now subject to duties of 50 per cent rather than the average 15 per cent tariff. Only recently, Germany’s steelmakers were producing around 37 million tonnes of crude steel per year, more than all the other EU manufacturers combined. The loss of American orders is particularly painful since Germany supplied around one million tonnes of steel to the US before the tariffs were imposed.
Lowest level since 1991
Meanwhile, the situation in the German chemicals sector continues to deteriorate. Chemicals have suffered badly from the politically motivated decision to stop purchasing cheap Russian gas supplied by pipeline and switch to expensive liquefied natural gas, mainly sourced from the United States and brought over by ship. By 2022, chemical production (excluding the pharmaceutical sector) was already down by around 10 per cent on the previous year’s level.[4] And it fell again by 11per cent in 2023.[5] Currently, the significant shrinkage in demand from other crisis-hit industries, not least the automotive sector, is causing orders to plummet. Industry analysts say the utilisation of plant capacity is currently at 71 per cent. The threshold that must be reached for profitable production is 82 per cent capacity utilisation.[6] According to the German Chemical Industry Association (VCI), German chemical production in the second quarter of 2025 was a good 5 per cent below the previous year’s figure. Chemical factories are now being closed. Six companies in the industry have reportedly announced plans to shut down entire plants this year alone. So far, a good 2,000 jobs have been cut, it is reported. The industry is producing “at its lowest level since 1991”.[7]
Zero tariffs for US competitors
Further slumps are looming. On the one hand, imports from China have soared by around 40 per cent in the first half of the year alone, compared to the same period last year.[8] Companies in China, including Chinese subsidiaries of German chemical companies, have been able to produce much more cheaply due to lower energy prices and other factors. Added to this is the fact that the new US tariffs also make Chinese exports to the United States much more difficult, so Chinese producers are looking for new sales markets. China is pushing even harder than before to access EU and other markets around the world. It is all happening at a time when German chemical companies are coming under additional pressure due to the disastrous EU trade deal with the United States. Whereas tariffs on imports from the US previously stood at 6.5 per cent as far as chemicals were concerned, they have been reduced to zero under the new deal. While customs duties had “protected Europe’s chemical market to a certain extent from cheaper US products”, the agreement to abolish all duties on American imports will now have “enormous implications for trade flows”, warns market research group ICIS, among others.[9] According to reports, imports of chemical products from the United States to the EU already rose in the first half of 2025, with further growth expected.
Against China
Meanwhile, calls are growing for targeted EU protection measures to support the German chemicals sector as it loses out in global markets. However, these calls are, at least not publicly, for the EU to reverse its trade deal with the US, i.e. to challenge the tariff-free status of American imports to Europe that accompanies Washington’s imposition of heavy tariffs on Europe’s own exports. Nor are they aimed at resuming imports of low-cost Russian natural gas. Rather, the European Chemical Industry Council (Cefic) is in line with some other European industry associations in demanding protectionist measures to curb chemical imports from China.[10]
A future tariff-free transatlantic area?
The EU’s protectionist approach is expressed in what the European Commission announced on Tuesday in defence of the EU steel industry. The Commission wants to reduce the volume of steel that can be imported into the EU duty-free by almost half, limiting imports to just over 18 million tonnes.[11] By the same token, the duty on any steel imported in excess of this quota will be doubled from 25 per cent to 50 per cent. The trade background to this response is that US tariffs are keeping steel out of the US market not only from the EU but also from numerous other countries. Steel producers from Turkey, China and other countries are therefore seeking new markets, which in turn increases export pressures on the EU. The European Commission argues that it is vital to stabilise steel production in Europe in order to retain a secure home-grown supply of essential materials for the European defence industry. However, according to EU diplomats, Brussels does not want to leave it at that. The plan is to negotiate a joint tariff-free area for steel products with the United States, which the United Kingdom could also join.[12] So the EU is aiming to return to a stable transatlantic trade arrangement while simultaneously fending off Chinese imports.
[1], [2] Julia Löhr, Patrick Welter: Kampf um den Wohlstand. Frankfurter Allgemeine Zeitung 09.10.2025.
[3] Franziska Müller: Stellenabbau spitzt sich zu: Das fordert die Autobranche jetzt von der Regierung. de.euronews.com 08.10.2025.
[4] See: Die Kosten des Wirtschaftskriegs.
[5] Chemie und Pharma: Umsatz 2023 um 12 Prozent eingebrochen. wir-hier.de 07.02.2024.
[6], [7] Bert Fröndhoff: Deutsche Chemiebranche produziert so schwach wie zuletzt 1991. handelsblatt.com 03.09.2025.
[8], [9], [10] Bert Fröndhoff: Chemieexporte aus China verschärfen die Krise in Europa. handelsblatt.com 08.10.2025.
[11] EU-Kommission will Stahlbranche schützen. Frankfurter Allgemeine Zeitung 08.10.2025.
[12] Olga Scheer, Jakob Hanke Vela: EU erhöht Einfuhrzoll für Stahl auf 50 Prozent. handelsblatt.com 06.10.2025.
