Germany's industrial powerhouse has long been the backbone of Europe’s economy. But after years of steady growth, manufacturing activity has been on a downward trajectory since 2018. Could this decline suddenly accelerate due to "cluster effects" and local economies of scale unraveling?

In this episode, we dive into the forces shaping Germany’s industrial slowdown and explore whether policy interventions could halt or even reverse the trend. We ask how insights from economic theory help us make sense of these cascading risks.

Join us as we discuss these pressing questions, drawing also on the academic work by David Baqaee, whose paper "Cascading Failures in Production Networks" (Econometrica, 2018) sheds light on how production networks can amplify economic shocks.

We discuss the effects of tariffs on consumers and producers, drawing on evidence from the tariff war during the first Trump administration.

The empirical evidence shows that import tariffs led to increases in domestic prices, reductions in import quantities and a reduction in product variety. This coupled with additional adverse effects on global supply chains and retaliatory tariffs makes it hard to understand how the U.S. can gain in economic terms from tariffs.

We draw our insights from this academic paper:

Amiti, Weinstein, Redding: "The Impact of the 2018 Tariffs on Prices and Welfare"

https://www.aeaweb.org/articles?id=10.1257/jep.33.4.187

Join our discussion of the ECB's decisions and communication following its rate setting meeting on January 30, 2025 and learn about the outlook for Euro Area growth, inflation and interest rates.