US credit rating crisis: How Germany's industrial policy is being put to the test!

US credit rating crisis: How Germany's industrial policy is being put to the test!

The downgrade of the US credit rating by Moody’s caused a stir in the international financial world. On May 19, 2025, the rating was reduced from Aaa to Aa1, reflecting concerns about rising national debt and interest payment ratios. Moody's forecasts a deficit of up to 9% of gross domestic product (GDP) by 2035. In response to this situation, US Treasury Secretary Scott Bessent is trying to instill confidence by pointing to the planned reduction in interest rates on ten-year Treasury bonds, thereby raising hopes of stabilization.

At the same time, there are tensions in the trade sector. Walmart says it will not pass on the costs of the new tariffs to customers, while former President Donald Trump is demanding that Walmart cover the tariffs itself. These developments come in the context of a US trade war. In Germany, this situation is viewed critically because, according to Sebastian Dullien from IMK, the trade war reduces the country's growth by around 0.75 percentage points.

Geopolitical challenges for Germany

Germany is currently facing several geopolitical challenges: the US trade war, an unreliable trading partner in Russia and China's strategic offensive with the “Made in China 2025” program. China has increased tariffs on plastic from the EU and the USA, which is putting additional pressure on German companies.

Dalia Marin emphasizes that foreign direct investment is essential for technology transfer in Germany in order to survive in this challenging environment. Yasmin Fahimi, representative of the DGB, warns that essential values ​​must not be given up and calls for a reform of the debt brake and adjustments to inheritance and wealth taxes.

Future of EU industry

Julia Eder from the Vienna Chamber of Labor supports strengthening the EU and recommends that the Union should learn from the Chinese model and develop in the area of ​​technology and innovation. The European Investment Bank plans to invest around 70 billion euros in the development of artificial intelligence and semiconductor manufacturing by 2027 to boost the EU's competitiveness.

In this context, Guntram Wolff from the Free University of Brussels warns that the EU must catch up in the arms industry as Russia's war economy is active. Dullien also criticizes the classification of defense spending as investments and calls for more sustainable use of funds in other emerging sectors. The challenges are complex and require quick action from political and economic actors.

Developments in the areas of industrial policy, trade war and geopolitical strategies will have a significant impact on the economic environment in the coming years. Companies and governments are required to develop innovative solutions to meet the challenges of globalization and geopolitical tensions.

Further details and information on current developments can be found in the reports Boys world and from Econstor.