Europe's Industrial Base is Imploding
The German economy -- the powerhouse of Europe -- grew for the first time in 4 years, by a laughable 0.2%
And even that was entirely bought with government money.
Meanwhile the US is currently growing at 5.3% -- faster than China.
So 27 times faster.
Sadly, Germany’s 15 minutes of growth won’t last given their crushing energy problems, crushing migrant crisis, and the fact Donald Trump is stealing Germany’s industrial crown jewels that form the backbone of European industry.
First the numbers. German statistics agency Destatis reported GDP grew 0.2% last year -- that’s the entire year.
That’s big in Germany considering they actually shrank since 2019. Seven lost years.
This matters because Germany is nearly a third of industrial production in EU -- with a lot of the rest being German subcontractors in places like Poland or Belgium.
Who are now fleeing to Donald Trump’s America.
How Germany Destroyed Itself
The three big reasons Germany is hurting are energy, China, and a skyrocketing administrative state.
German energy prices blew up after pink-hair environmentalists shuttered gigawatts of coal and nuclear, followed by Russian energy strangled over the Ukraine war.
This is exactly what Trump warned would happen back in 2018. To raucous sneers from German diplomats.
German energy prices are now nearly three times costs in US manufacturing states like Tennessee or North Caroline. That’s rough on German households but it’s crippling for bedrock industries like steel, cars, and chemicals.
Number two is China, which went from export paradise for German companies to dumping what it can’t sell in the US.
Since 2019 Germany went from a $25 billion trade surplus with China to a $90 billion deficit today. Scaling that to the US it’s like going from a $150 billion trade surplus to a $600 billion deficit.
Runaway Administrative State
Finally, the administrative state, where Germany’s empire of red tape is sinking the entire economy -- especially small business.
A recent study found regulatory compliance in Germany consumes one in five employee hours — 2 to 4 times the US level.
To give a flavor, German companies need to get written permission and keep it on file to hold a birthday party for an employee.
Even tiny companies need a dedicated recycling officer (Abfallbeauftragter) and privacy officer (Datenschutzbeauftragter).
One heat treatment regulation was updated 18 times in a single year — every time with new paperwork or capital investment.
The rule of thumb in regulation is total lost production is seven times direct compliance costs in reduced investment and business when regulations either banned it or forced ruinous capital investments like “green” pizza ovens.
That implies regulation alone is cutting the German economy roughly in half.
Real-World Impact
In the last year alone Germany lost half a million jobs -- in US terms that’s 2 million jobs.
Worse, Germany replaced them with 200,000 additional bureaucrats to suck the life out of what businesses remain.
That’s a problem because a Mercatus study found every additional regulator kills roughly 140 jobs. Meaning once those 200,000 bureaucrats are in full swing, they’ll take out literally millions of jobs in endless mandates, fines, and fees.
This creeping Sovietization has already made Germany poorer than Louisiana. Growing two tenths of a percent every seven years it’s on its way to West Virginia.
And it’s going to get worse. Because Donald Trump is doing everything he can to lure away their crown jewels with the carrots of lower taxes and lower regulations.
Along with the stick of tariffs that are currently 15% on German cars — about $6,000 or more. And 50% on German steel.
Since Trump took office, BMW, Volkswagen, and Mercedes have all announced plans to move to Alabama and South Carolina. Along with hundreds of their suppliers and giants from chemicals and pharmaceuticals to industrial machinery and cranes.
What’s Next
Unfortunately for Germans -- and Europeans -- there’s no help coming.
The Greens own European energy.
The China dumpfest isn’t ending while Trump’s in office.
And the red tape is actually getting worse: Remember those 200,000 fresh bureaucrats.
Most brutal, German bureaucrats and employees of state-funded enterprise now make up one in five voters. That’s comparable to social security recipients in the US, widely considered politically untouchable for their votes.
If the administrative state in Germany — and Europe — is similarly untouchable, it’s a straight line to serfdom.
Perhaps Europe’s best hope is the US does so well that European voters wake up and demand radical change while there’s still a functioning economy left.
Each week I write on Economics and Freedom. Consider joining over 22,000 subscribers and becoming a free or paid subscriber to support my work.
Every day I also make 3-minute videos on economics and freedom:
20 minute Roundup Podcast of all the week’s videos: Search Peter St Onge on all major podcast platforms.
Oh, Peter - no one is “fleeing” to Donald Trump’s America. Germany has an energy crisis because the US blew up their gas line to Russia. Germany knows who is on their side. Germany plows more money into their citizens benefit, and that’s what the citizens want. Economic success in the US has little effect on American citizens - it rarely goes into their pockets. Maybe you are not as empathetic as I thought. Most Americans know the future is elsewhere. We’re being bamboozled by a demented puppet managed by greedy autocrats. It’s fun to read your rosy scenarios and twists on the facts, but you are more entertaining than accurate.