Midsized German firms bet they can beat Trump tariffs

Local Germany

2 days ago

The hope is that, in niche areas where American customers have no obvious alternatives, buyers across the Atlantic will just have to accept paying higher prices for their high-tech machines and products.
"The customer in America pays the tariff," said Thorsten Bauer, co-head of laser maker Xiton Photonics, based in the western city of Kaiserslautern. "We don't notice a thing."
Bauer's firm of about 20 workers is in this respect typical of the often family-owned enterprises that make up the German "Mittelstand", Deutsche Bank executive Jan-Philipp Gillmann said.
"German Mittelstand companies are somewhat protected since they are often very specialised, sometimes the only firm that makes a particular part," said Gillmann, Deutsche Bank's Head of Corporate Bank Europe.
"The cost of the tariff will often be borne by the consumer."
Under a framework deal agreed in late July, EU exports are set to face across-the-board US tariffs of 15 percent from Thursday -- higher than traditional duties but much lower than Trump's threatened 30 percent.
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While German corporate titans such as automaker Volkswagen have grabbed headlines by taking tariff hits measured in the billions, many of the smaller firms hope to weather the headwinds.
Brian Fuerderer, head and founder of Microqore Medical, a high-end surgical equipment maker with 32 employees, agreed.
"It's not possible to just copy 'Made in Germany,'" he said. "There's not much comparable to what we in Germany do when it comes to medical technology."
He added that US tariffs would have to rise to 30 or even 40 percent before American customers got cold feet.
"For Volkswagen, for big business, it's hard," he said. "But if you have a real niche, something only certain specialists can do, demand will carry on as before."
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'No legal certainty'
The Mittelstand's rugged optimism defies Trump's repeated statements that foreign companies -- not American importers or consumers -- will pay the tariffs.
That does not mean the levies -- and the past months of uncertainty around them -- have left the small and medium enterprises entirely unscathed.
The United States is Germany's largest trading partner and Trump's on-again, off-again tariff blitz has already had an impact.
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"When all the tariffs started, I made no US sales for three months," Bauer said. "You don't spend money if you don't know how things will look in the next six months."
He hopes the latest agreement fixing duties at 15 percent, up from a provisional 10 percent in the lead-up to an August 1st deadline, will at least give American companies the confidence to place orders again.
But he is not entirely sure, pointing to Trump's highly changeable tariff policies.
"There's no legal certainty, basically," Bauer said. "I am trying to push up sales in Europe with discounts and things like that, to be less dependent on the international market."
'Regulating ourselves to death'
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About a quarter of Xiton Photonic's sales are exports to the United States and it would be hard to diversify, Bauer said, since his high-tech customers are more often found in Japan, China or America than in Europe.
Wider geopolitical tensions mean there is no easy answer.
"China could equally turn around tomorrow and say: 'We are not importing anything from the EU,'" said Bauer.
"In that case I'd be just another leaf blown about by the wind."
Fuerderer, whose company makes half its sales in the United States, said that relocating production there could make sense for some firms in the sector over the long term, particularly given high energy costs and burdensome bureaucracy at home.
"The US government wants companies to manufacture in the United States and they have tax breaks, grants and subsidies to make it happen," he said.
In Europe, by contrast, Fuerderer said "we are regulating ourselves to death. People are afraid to put money on the table and try something new."
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