Germany’s chemical industry crisis deepens amid US tariffs and Chinese imports

Following the automotive and steel industries, the chemical industry has been added to the crisis reports emerging from the German economy.

According to recent reports, production in the German chemical industry contracted by approximately 5% in the second quarter of 2025. Observers note that overall production is now as weak as it was in 1991.

The sector is under particular pressure not only due to cheap imports from China but also because the EU has reduced tariffs on imports from the US to zero under the current trade agreement with the Trump administration. Consequently, US chemical products can now successfully compete with German goods.

Additionally, the German chemical industry no longer receives low-cost Russian gas, which has eroded a significant foundation of its formerly strong, but now diminishing, competitive advantage.

Crisis reports are also coming from other sectors: overall, German industrial production fell by 5.6% in August compared to the previous month.

The decline in German industry continues

On Wednesday, new data from the Federal Statistical Office confirmed the bleak situation in German industry.

According to this data, production in the manufacturing sector fell by 4.3% in August compared to the previous month. In industry alone—excluding energy production and construction—the decline reached 5.6%.

Observers note that an unusual number of automotive companies scheduled their annual shutdowns for August this year, which artificially restricted production.

However, even excluding the automotive sector, production fell by approximately 2.5%; in the crucial machine engineering sector, there was a contraction of up to 6.2%.

Orders received in August also decreased by 0.8% compared to the previous month, marking the fourth consecutive month of declining orders.

The new US tariffs, which make all types of exports unprofitable, are seen as the primary reason for this. The sector’s weakness was a significant factor in the German government’s decision on Wednesday to lower its 2025 growth forecast to just 0.2%.

The Federal Republic’s economic performance had already declined by 0.3% in 2023 and 0.2% in 2024. Federal Minister for Economic Affairs Katherina Reiche commented, “Other economies are growing.”

Meeting after meeting from the CDU-SPD government

The German government is responding to the drop in production with crisis meetings. For example, an “automotive summit” was held yesterday at the Federal Chancellery to find solutions for the dramatic situation facing the automotive industry.

The sector has lost approximately 112,000 jobs since 2019, with about 51,500 of those losses occurring last year alone. Further layoffs are inevitable: Volkswagen will reduce its workforce by up to 35,000, and Daimler by about 5,000.

Suppliers are also making significant cuts: Bosch plans to lay off up to 13,000 people, and ZF up to 7,600.

One of the reasons for this is the transition to electric mobility, which German automotive companies have failed to organize effectively, leaving them far behind their Chinese competitors.

The Federal Chancellery also announced it will hold a crisis meeting with representatives of the steel industry in October. This industry also suffers from structural problems but is particularly affected by the US tariff war: steel exports to the US are subject to a 50% tariff instead of 15%.

Germany, whose steel producers recently manufactured about 37 million tons of crude steel annually—more than any other EU country—is severely affected by this situation.

Before the tariffs were implemented, Germany supplied approximately 1 million tons of steel to the US.

Weakness in the chemical sector resembles 1991

Meanwhile, the situation in the German chemical industry continues to worsen.

The industry was particularly harmed by the politically motivated decision to stop purchasing cheap Russian pipeline gas and switch to expensive liquefied gas.

By 2022, chemical production, excluding the pharmaceutical sector, was already about 10% below the previous year’s level. In 2023, it fell by another 11%.

Currently, a significant decrease in demand from other crisis-hit industries, such as the automotive sector, is causing orders to fall.

According to industry sources, plant capacity utilization is currently at 71%. The threshold for profitable production is 82% capacity utilization.

According to the German Chemical Industry Association (VCI), German chemical production in the second quarter of 2025 was 5% below the figure for the previous year.

Entire chemical plants are now being shut down: according to reports in the German media, six companies in the sector have announced plans to close their plants entirely this year alone.

So far, more than 2,000 jobs are said to have been cut. The sector is producing at its lowest level since 1991.

American tariffs hit German heavy industry

Further declines are on the horizon. On one hand, imports from China are increasing significantly: according to reports, they rose by about 40% in the first half of the year alone compared to the same period last year.

Chinese companies, including the Chinese subsidiaries of German chemical firms, can produce much more cheaply thanks to lower energy prices, for example.

In addition, new US tariffs are making it difficult for China to export to the US; therefore, Chinese companies are seeking new sales markets and are trying to penetrate the EU, among other places, even more intensively.

This comes at a time when German chemical companies are under additional pressure due to the EU’s trade agreement with the US. The reason is that the 6.5% tariffs on imports from the US, which previously applied to the sector, will be reduced to zero under the new agreement.

The market research group ICIS warns that while tariffs previously protected Europe’s chemical market to some extent from cheaper US products, their removal could now have enormous effects on trade flows.

According to reports, imports of chemical products from the US to the EU had already increased in the first half of 2025 and are expected to rise further.

Demand for protectionism against China

Meanwhile, calls are growing for the EU to take “targeted protectionist measures” for the German chemical industry, which is falling behind in global competition.

For example, the European industrial association Cefic is demanding a reduction in chemical imports from China.

This is also consistent with the measures announced by the European Commission on Tuesday to protect the EU steel industry. According to these measures, the amount of steel that can be imported into the EU duty-free will be nearly halved to 18 million tons.

At the same time, the tariff applied to steel imported above this amount will be increased from 25% to 50%. The reason for this is that US tariffs exclude steel not only from the EU but also from many other countries, which pushes steel producers in Turkey and China, for example, to seek new markets, thereby increasing export pressure on the EU.

According to the EU, stabilizing steel production in the EU is essential to secure the raw material supply for the European defense industry. However, according to EU diplomats, Brussels does not consider this sufficient.

The plan is to negotiate a “common tariff-free zone for steel products” with the US and then to have the UK join this zone.

The EU Commission thus aims to stabilize transatlantic trade while simultaneously blocking imports from China.