Germany, long seen as Europe’s industrial powerhouse, is grappling with a crisis that is exposing deep structural weaknesses in its economy. Once the envy of the continent for its engineering precision and export prowess, the country’s manufacturing model now faces unprecedented challenges — from global trade disruptions to domestic inefficiencies and technological stagnation.
A Symbolic Collapse: Trumpf’s First Loss in Over a Decade
In a striking sign of the times, Trumpf, a flagship of Germany’s renowned Mittelstand (family-owned industrial firms), reported its first loss since the 2008 global financial crisis. The machine tool and laser manufacturer suffered a 16% drop in sales to €4.3 billion in the year to June, marking its third consecutive annual decline.
The repercussions were immediate. In Trumpf’s home city of Ditzingen, near Stuttgart, business tax revenues plunged by 80% since 2023, forcing local authorities to impose austerity measures. “We are facing a structural crisis,” said city treasurer Patrick Maier, who slashed €35 million in planned investments to keep the budget afloat.
A Stagnant Economy Under Pressure
Germany’s broader economic picture mirrors Ditzingen’s woes. Industrial production remains stuck at 2005 levels, and the economy has endured four consecutive years of stagnation. Analysts warn that this is no longer a cyclical downturn but a structural slowdown that threatens the foundation of Europe’s largest economy.
“Many of Germany’s economic strengths have turned into vulnerabilities,” said Marcus Berret of consultancy Roland Berger. The country’s heavy industrial base struggles to decarbonise; its dependence on exports has become a liability amid global protectionism; and its once-dominant automotive sector is losing ground in the electric vehicle transition.
The Twin Shocks: Trump’s Tariffs and China’s Rise
Two global shifts have dealt heavy blows to German manufacturers: the U.S. trade war under Donald Trump and China’s transformation into a high-tech manufacturing rival.
German exports to the U.S. fell 7.4% in the first nine months of 2025, after Washington imposed 15% tariffs on key goods and expanded 50% duties on metal components. Family-run agricultural equipment maker Krone Group was forced to halt U.S. production, warning that a $170,000 hay baler now costs $25,000 more due to tariffs.
Yet the greater challenge may come from China. Once a key buyer of German machinery, China now outproduces Germany in quality and price — with capital goods that are 30% cheaper on average. For the first time since records began in 2008, Germany is running a trade deficit with China in machinery.
“Chinese firms have learned to innovate faster and more efficiently,” said Thilo Köppe of Vindelici Advisors. “They need half the time to turn an idea into a finished product.”
From Cars to Machines: Competitive Erosion
Germany’s premium carmakers were the first to feel the squeeze. Now, manufacturers of industrial goods are facing similar pain. Companies like Schaeffler and Reifenhäuser Group acknowledge that Chinese competitors have surpassed Western firms in both agility and cost.
A vivid example comes from Bauer Kompressoren, which compared two wire-processing machine quotes: €130,000 from a Swiss supplier and €28,000 from a Chinese firm. “It’s puzzling,” said CEO Philipp Bayat, admitting that the cheaper option appeared comparable in quality.
Rising Costs and Bureaucracy at Home
Even as global competition intensifies, Germany’s domestic environment has become increasingly burdensome. High labour costs, strict regulations, and environmental red tape are pushing manufacturers to the brink.
“Germany cannot lose its most important export markets, burden industry with endless regulations, and still believe we’ll remain competitive,” warned Bernard Krone.
In some cases, neighbouring Switzerland now has lower labour costs than Germany due to fewer holidays and absentee rates. “It’s crazy,” remarked Trumpf’s Stephan Mayer.
Jobs on the Line
The industrial slump has already led to job cuts across major sectors. Trumpf alone shed 1,200 positions — about 6% of its workforce. Major automakers and suppliers, including Volkswagen, Bosch, Continental, and ZF, have announced tens of thousands of layoffs.
Unemployment has risen in 37 of the past 44 months, reaching 3 million, the highest in 14 years. Economists warn that Germany’s vaunted employment stability may soon unravel as capacity utilisation drops and export orders shrink.
Searching for a Path Forward
To stop the decline, industry leaders and economists are urging Berlin and Brussels to emulate U.S. and Chinese-style industrial protectionism.
“‘Europe First’ is not a slogan — it’s a necessity,” argued Martin Herrenknecht, founder of Herrenknecht AG, which builds tunnel boring machines.
Proposals include restricting subsidies for Chinese electric vehicles, requiring joint ventures for Chinese companies operating in Europe, and investing in technological sovereignty. Others advocate for strategic cooperation with China at the corporate level — “playing in the lion’s den” — to learn and adapt faster.
Defence Industry: A Limited Lifeline
Some economists see defence spending as a potential buffer. Chancellor Friedrich Merz has loosened debt limits to allow €1 trillion in new investments over 10 years, including upgrades to infrastructure and the military.
Germany’s biggest defence contractor, Rheinmetall, has seen its share price soar, with an average annual return of 85% over five years. Yet defence accounts for less than 2% of all metal and engineering jobs — too small to offset wider losses.
Can Fiscal Stimulus Revive Growth?
Economists hope the Merz government’s investment plan will push Germany back to growth by 2026, after meagre 0.3% growth in 2025. BNP Paribas predicts output will rise 1.4% in 2026, driven by infrastructure upgrades.
However, critics warn that too much of the new spending is being diverted to welfare rather than industrial renewal. Local treasurers like Ditzingen’s Patrick Maier say the funds are insufficient and slow to arrive. “We’ll only finish projects already under way,” he said. “The rest are off the agenda for a very long time.”
A Nation at a Crossroads
Germany’s manufacturing crisis is not a temporary slowdown — it marks a turning point in the country’s economic identity. The model that sustained prosperity for decades — exporting high-value industrial goods — is being tested by technological disruption, geopolitical fragmentation, and self-inflicted rigidity.
Whether Germany adapts or declines will depend on how quickly it can rethink its industrial policy, embrace innovation, and reclaim competitiveness.
The question now is not whether German industry can recover — but whether it can reinvent itself before it’s too late.
