By Brian Swint

President Donald Trump will meet new German Chancellor Friedrich Merz at the White House on Thursday, as the clock ticks on the 90-day tariff pause set to expire on July 9.

To be clear, Merz doesn't negotiate for the European Union, which is in charge of trade policy for the 27-nation bloc. But Germany is the largest economy within the EU, and taken together, the bloc accounts for even more trade with the U.S. than China.

The car industry Germany is famous for--it's home to names such as Volkswagen, Mercedes-Benz, and BMW--is already subject to a 25% tax on imports, and Germany's economy relies heavily on U.S sales for growth. So the incentives are particularly strong for Merz to get tariffs as low as possible.

The two leaders may discuss Germany's value-added tax, which Trump has cited as a non-tariff trade barrier, as well as possible sales of U.S. defense equipment and natural gas. After Merz's party won the election in February, he quickly put together a package worth about $1 trillion for spending on defense and infrastructure.

Separately, the Congressional Budget Office said Wednesday that the tariffs in place as of mid-May will reduce the federal budget deficit by $2.8 trillion over 10 years. That may help Trump and Republicans in Congress overcome resistance to the budget bill currently in the Senate -- the CBO said tax cuts in the bill will add $2.4 trillion to the deficit over the period. Elon Musk, the CEO of Tesla and, until recently, head of the Department of Government Efficiency, criticized the bill for including too much deficit spending.

Price Hikes Already Here

Unfortunately, that news comes amid fresh signs that tariffs could drive up prices for consumers. About 75% of companies facing higher costs because of the levies are already passing on some of that to customers, according to a survey by the New York Federal Reserve.

It's not just U.S. firms feeling the impact. PVH Corp, the parent of fashion brands Calvin Klein and Tommy Hilfiger, blamed tariffs as it cut its full-year profit outlook on Wednesday.

Write to Brian Swint at brian.swint@barrons.com

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June 05, 2025 06:16 ET (10:16 GMT)

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