Baden-Württemberg's exports: Industry in trouble due to trade conflicts!

Baden-Württemberg's exports: Industry in trouble due to trade conflicts!

The current situation in Baden-Württemberg's industry remains tense. According to the latest economic survey by the BWIHK, there is no fundamental change in foreign business. In view of the existing geopolitical tensions and the associated uncertainties, there is great caution in export expectations. Only 26 percent of companies surveyed expect business to improve, while 27.5 percent expect difficult times, which represents a slight decrease compared to the beginning of the year. These developments make it clear that the mood among companies remains rather pessimistic, as at the beginning of the year 30 percent expected a deterioration, but only 24 percent could hope for positive changes, such as that South Germans reported.

The trade conflict between the USA and Europe has put additional strain on the economy. This is particularly reflected in the automotive industry and mechanical engineering, which are heavily dependent on exports in southwest Germany. BWIHK Vice President Claus Paal notes that exports were traditionally seen as an anchor of stability, but are now faltering. An alarming aspect is that 56 percent of industrial companies see geopolitical tensions as a serious risk factor; at the beginning of the year it was 44 percent. This risk has now become the third largest business risk, behind domestic demand (70 percent) and labor costs (59 percent).

Export development and effects of customs policy

The declining export expectations are also being reinforced by US President Trump's tariff policy. Only 19 percent of industrial companies expect exports to the USA to increase, which represents a drastic decline compared to 34 percent at the beginning of the year. 41 percent predict a decline, and a total of 53 percent expect exports to the USA to decline. These trends are also reflected in the numbers: Exports to the USA fell by 1.8 percent to 8.7 billion euros, which shows that the downward trend is continuing.

Baden-Württemberg's foreign trade stagnated in the first quarter of 2025: exports remained at the previous year's level at 61.6 billion euros, while imports fell by 0.7 percent to 54.2 billion euros. This represents a further indicator of the uncertainty in the global economy. Despite these declines, the USA remains Baden-Württemberg's most important trading partner.

Impact of geopolitical risks on trade

The importance of geopolitical risks and their impact on trade is further underlined by a study by Khalil, Osten and Strobel (2025). This examines euro area and US imports from 1990 to 2019 and shows that an increase in a trading partner's geopolitical risk acts as a negative supply shock on imports. Although the study does not take into account the impact of Russia's current war of aggression in Ukraine, the results are consistent with similar conclusions from other studies analyzing the impact of geopolitical risks on trade ( Bundesbank ).

Overall, it is clear that the challenges for the Baden-Württemberg industry are complex and multi-layered. Geopolitical tensions remain a serious risk that has a significant impact on export prospects.