The tariffs would likely halt German growth in 2025 and limit it to 1.2 percent in 2026, according to the IMK.

BERLIN, July 16 (Xinhua) -- A proposed 30 percent tariff on European Union imports by U.S. President Donald Trump could reduce German economic growth by around 0.25 percentage points in both 2025 and 2026, Germany's Macroeconomic Policy Institute (IMK) said on Wednesday.

Trump has pledged to impose the tariffs starting Aug. 1 if no progress is made in trade talks with the European Union (EU).

The tariffs would likely halt German growth in 2025 and limit it to 1.2 percent in 2026, according to the IMK. This compares with the institute's earlier forecast of modest 0.2 percent growth this year and 1.5 percent next year, supported by a recovery in late 2025 and increased public investment and defense spending.

While Germany would be affected, the IMK said the economic impact on the United States could be even more severe. The tariffs are expected to raise consumer prices, erode real incomes, and dampen household consumption. With inflationary pressure likely to keep monetary policy tight, overall U.S. growth could fall by around 0.7 percentage points, the institute said.

The United States was Germany's largest export market until 2024, accounting for nearly 10 percent of total exports. A slowdown in U.S. demand and knock-on effects in other economies could further weigh on German exports, the IMK warned.

Given the heightened risks, the institute said it is now even more crucial for the German government to deliver on its promised fiscal stimulus. The additional public investment outlined in the 2025 federal budget must be implemented swiftly, and further support should be secured in the 2026 budget now under discussion in parliament, said the IMK.

"A rapid implementation of the planned public investment offensive could significantly reduce the economic risks in Germany," the think tank said.