Interview with ZEW-President Professor Achim Wambach, PhD
US President Donald Trump has made the economy - alongside migration - the focus of his second term in office. What is different about “Trump 2.0” compared to his first four years as president?
President Trump and his advisors are much better prepared this time than during his first term in office. This is evident in the executive orders (presidential decrees) that he has issued so far: In his first month in office in 2025, he has already issued 70 executive orders (as of February 18) - 15 more than in his entire first year in office in 2017.
Trump's main aim with his economic policy is to encourage investment in the USA and create new jobs there. Does his aggressive approach have any chance of success?
It is worth looking back to his first term in office, when Trump also increased import tariffs on various goods. Studies show that this has actually harmed the American economy. Most of the tariffs were probably passed on to American consumers and industrial consumers. It is estimated that they have suffered a loss of 51 billion dollars. According to these calculations, the total loss for the USA amounted to 7.2 billion dollars, as the national budget and domestic producers benefited from the tariffs. The same can be expected from the announced tariffs, if they are implemented. The Kiel Institute for the World Economy is modeling the effects of the tariffs that Trump announced during his election campaign: a uniform 10 percent tariff on all imports from countries with which the US does not have a free trade agreement and a 60 percent tariff on Chinese imports. This would result in a 2.5 percent decline in global trade in the first year, and an even greater decline in the long term. The Peterson Institute has also calculated the impact of Trump's tariff threats during his election campaign. They show that an average middle-income household would have 1700 dollars less income, a 2.7 percent reduction in income. Tariff policy is not good economic policy. Not even for the country imposing the tariff. But it strengthens the state coffers and domestic companies that are in international competition. Everyone else suffers.
Share of machinery and equipment in the manufacturing industry remains constant
In nominal terms, the USA is the world's largest economy. It generates more than a quarter of global value added. In 1980, manufacturing accounted for 20.5% of the overall economy in the United States. As in many other industrialized countries, this share has tended to decline. In 2023, it amounted to 10.3 percent.
Within the manufacturing sector, the chemical industry of the USA is the economic sector with the highest value added, with a share of 18.7%. Alongside the computer and electronics industry and the food industry, it is traditionally one of the largest economic sectors. From 1997 to 2023, the share of chemical products increased by 5.8 percentage points. The food industry increased by 2.3 percentage points. The computer and electronics industry, on the other hand, lost 3 percentage points. Machinery and equipment manufacturing, on the other hand, has been able to roughly maintain its contribution over the years. In 2023, it was 7.1 percent.
Strongholds of machinery and equipment manufacturing
The strongholds of machinery and equipment manufacturing of the USA are in the south with Texas, in the northeast with Illinois, Wisconsin, Ohio, Michigan and Iowa, and in the west with California.
In the agricultural equipment, construction equipment, mining & minerals sector (NAICS 3331), Iowa is in first place of the US states, followed by Illinois and Texas. In the area of fans, heating, air conditioning and refrigeration products (NAICS 3334), Texas is in first place, followed by Georgia and Tennessee. For internal combustion engines, turbines and power equipment (NAICS 3336), Michigan and Indiana lead, followed by New York. In "industrial machinery" (NAICS 3332), California is in the lead - semiconductor production equipment plays a particularly important role here. Metalworking and processing machinery (NAICS 3335) is clearly led by Michigan.
Machinery Manufacturing: Sales, value of shipments or revenue ($1,000), 2022
Source: U.S. Census Bureau
VDMA Focus topic USATIPP
The United States is not only the largest export market outside the EU for German mechanical engineering, but also an important investment location. However, market entry is demanding: local standards, complex tax laws and legal liability issues present companies with challenges. Our VDMA focus topic shows what is important and how mechanical engineering companies can successfully organise their market strategy for the USA.
Imports have gained in importance - Mexico is the largest supplier
The market volume in US machinery and equipment manufacturing amounted to (estimated) around EUR 530 billion in 2024. The share of imports has increased significantly over the years. In terms of import volume, the USA is by far the largest machinery market in the world. Its imports amounted to 227 billion euros in 2024.
While China was not yet very important in 2000, it became the most important foreign supplier for the US machinery market between 2013 and 2022. China took the largest share in 2018, accounting for a good 18% of US machinery imports and 8% of the market volume. Since then, China's share of imports has tended to decline - in 2024, it accounted for just under 12% of imports and 5% of the market volume. However, Mexico's importance has increased. The country became the most important supplier of machinery products in 2023. In 2024, it accounted for around 15% of machinery imports, or 6% of the market volume. Germany took third place just behind China, followed by Japan.
International network of the VDMA
Mechanical and plant engineering from Germany and Europe stands for cutting-edge technologies, innovations and solution competence. It is strong in exports and internationally active, with an immense range of products and applications. And: mechanical and plant engineering is large and innovative.
Innovation industry Mechanical and plant engineering: Speaking of innovation: mechanical engineering is a leading force in research in both Germany and Europe. According to the Stifterverband, around 10 percent of the German economy's expenditure on research and development comes from mechanical engineering. And in a comparison of industrial sectors, mechanical and plant engineering is one of the most innovative: 70 percent of its companies are innovators, according to the Centre for European Economic Research (ZEW). The focus is on many of the key issues of our time: digitally networked production, future mobility, climate protection and feeding the world.
International network for mechanical and plant engineering: The VDMA has been an advisor, stakeholder, international network, sparring partner and voice of the mechanical and plant engineering industry for more than 130 years. As an organization, the VDMA represents 3600 German and European companies, making it the most important industrial association in Europe. The VDMA portfolio is unique in terms of its thematic breadth and the variety of services and networking options for member companies. Regional individuality and an international focus are valuable characteristics that make the VDMA particularly attractive for its members. Capital city offices, regional offices and international representative offices are anchor points in the VDMA network:
International network of the VDMA
Source: VDMA
Key data for machinery and equipment manufacturing
Machinery and equipment manufacturing companies based in the EU generated an estimated turnover of around 867 billion euros in 2024. 293 billion euros, or around a third, were sold to countries outside the EU single market. This contrasts with machinery imports amounting to 129 billion euros. The foreign trade surplus therefore amounted to around 165 billion euros.
The EU market for machinery and equipment was worth around 700 billion euros 2024. Around 82% of this came from a production site in the single market. A breakdown of the EU market volume for machinery products by supplier country show that Germany account for 36%, followed by Italy (13%), France (7%), Sweden (4%), Austria and Denmark (3% each). As in previous years, the most important foreign suppliers of machinery were China (6%) and the USA (3%), followed by the United Kingdom (2%).
Industry structure
With a total of around 3 million employees in the EU, including 1.3 million in Germany alone, mechanical and plant engineering is one of the largest employers among the capital goods industries, both in the EU and in Germany. In terms of the manufacturing industry in total, only food and animal feed production (4.3 million) and the manufacture of metal products (3.7 million) employ more people in absolute terms.
In terms of turnover, mechanical and plant engineering is the third-largest industrial sector after the food and animal feed sector and the automotive industry, with a turnover value of 846 billion euros in 2022. This ranking is unlikely to have changed to date. VDMA economists estimate the turnover volume for the EU machinery and equipment manufacturing industry at 867 billion euros in 2024. This corresponds to around 27 percent of global machinery turnover. By comparison, China accounts for almost 35 percent and the USA for 13 percent.
Production
Since mid-2023, the EU machinery and equipment manufacturing industry has been characterized by persistently weak demand. In 2024, price-adjusted production output shrank by 7%. The highest year-over-year decline was recorded in May 2024. It amounted to -9.6 percent. Apart from theCOVID-19 year 2020 and the year of the global economic crisis 2009, the last period with similarly high production declines in the European machinery and equipment industry was in the recession years 1992 and 1993.
The weak demand is making itself felt quite differently among machine manufacturers. Only in Greece were they able to escape the negative trend on a cumulative basis. Here, a small price-adjusted increase of 0.3 percent was even achieved in production. The machinery sector in Portugal and Spain recorded comparatively small losses. There was a high single-digit decline in Sweden. In Germany, it was only slightly lower at minus 8 percent. Production had to be cut back even more in Bulgaria, Belgium and Latvia, meaning that the previous year's figures were missed by double digits.
Global turnover
In 2024, machinery and equipment worth an estimated 3.26 trillion euros were manufactured worldwide. In euro terms, this is 1.5% less than in 2023.
As in previous years, in 2024, a third of the machines produced worldwide came from China. Therefore, the country remains the undisputed number 1 in the country ranking in terms of turnover. The gap to the following countries remains enormous. The USA is in second place, followed by Germany, Japan and Italy. The EU achieved a turnover volume of EUR 867 billion in 2024, which corresponds to around 27% of global machinery turnover.
Employees
According to preliminary figures, around 3 million people worked in the mechanical and plant engineering sector in the EU-27 in 2023. The long-term employment trend in the EU internal market is encouraging: between 2013 and 2023, the number of employees in the EU-27 increased by around 14%. Numerous smaller EU member states, but also Germany, benefited from the EU single market in a variety of ways.
With around 42% of employees in mechanical and plant engineering in the EU, the absolute majority work in Germany. Italy has the second-highest number of employees in absolute terms with just under 16%, i.e. just over half a million employees in the sector, followed by France with around 189,000.
Average labor costs in machinery and equipment manufacturing vary greatly between EU countries. While they amounted to an average of EUR 53.80 for every hour worked in Denmark in 2023, the average was just EUR 15.30 in Hungary, EUR 12.30 in Romania and just EUR 8.90 in Bulgaria. Germany (51.40 euros) ranks alongside Austria (51.30 euros), the Netherlands (52.40 euros) and Sweden (50.20 euros) in the group with the highest earnings within the EU-27. However, in the long-term trend, the Eastern European countries in particular are catching up with currently significantly lower wages. In Romania, for example, average hourly labor costs rose by over 151% between 2013 and 2023, admittedly from a very low level. In Portugal, on the other hand, where labor costs stood at EUR 14.70 in 2023, growth was less than 21% in the same period.
Foreign trade in machinery
Machinery exports in the EU-27 amounted to a total of 582 billion euros in 2024. A good third of this was accounted for by Germany, which exported machinery worth around 200 billion euros all over the world. It was followed by Italy with €95 billion, or a 16% share of total machinery exports in the EU-27, and the Netherlands with €55 billion, or a 9.4% share.
The most important sales markets for machinery deliveries from the EU-27 countries, both within the EU and to non-EU countries, are the USA, Germany, France and China in order. In 2024, Germany will be the No. 1 sales market for a total of 12 EU countries and the No. 2 sales market for a further nine EU countries in the machinery and equipment manufacturing industry. Looking at the EU-27's total machinery imports of EUR 397 billion, Germany imported the largest share in 2024 at EUR 85 billion or 21.5%. This was followed by France with an import volume of 45 billion euros or 11.4% and the Netherlands with 38 billion euros or 9.6%. At the same time, Germany is the largest country of origin for machinery imports to other EU member states, followed by China and Italy. EU partner countries imported machinery worth 88 billion euros from Germany. This corresponds to a share of 22.1 percent. China has been able to continuously increase its share of EU-27 machinery imports in recent years. After a double-digit decline in 2023, machinery imports from China rose again by 3.9% in 2024. With a volume of 42 billion euros, the People's Republic accounted for 10.7% of the EU-27's total machinery imports. Italy follows in third place with 34 billion euros and a share of 8.6 percent.
World trade shares
Global trade in machinery between the 51 most important machinery exporting countries rose to 1,449 billion euros in 2023. This represents a nominal increase of 1.6% compared to the previous year. Overall, 10 of the 51 exporting countries recorded double-digit growth rates on a euro basis, while 17 exporting countries recorded declines, five of them even with double-digit loss rates.
China's share of global machinery exports in 2023 was 18.0%, followed by Germany with 14.5%. The USA (8.8 percent), Japan (7.2 percent) and Italy (6.7 percent) followed in third to fifth place.
European companies are still global leaders in many areas of mechanical engineering. This is directly reflected in their specific global trade shares. In 9 out of 31 branches of mechanical engineering, companies from the EU-27 will have a share of more than 50% of global trade (including intra-EU trade) in 2023. Manufacturers from the EU-27 have particularly high shares in exports of cleaning systems (65.7%), food and packaging machinery (63.4%), agricultural machinery (61.5%) and woodworking machinery (61.4%).
Incoming orders
In 2024, incoming orders in the machinery and equipment manufacturing industry in Germany fell 8% short of the previous year's level in real terms.
Domestic orders fell by 13%, while orders from abroad were 5% below the previous year's level. By the end of the year, there were still no signs of orders bottoming out.
In 2024 machine orders for most machinery and equipment sectors were characterized by negative rates. The power systems, general ventilation technology, textile care, fabrics and leather technologies, mining & minerals and compressors, compressed air and vacuum technology sectors recorded an increase. 10 specialist sectors suffered double-digit declines. As usual, the spread was high and ranged from plus 23 to minus 22 percent in real terms.
