Trump and Merz at NATO is licensed under Creative Commons.
German Chancellor Friedrich Merz recently unveiled a major initiative to cut regulation, aiming to spur growth and capital formation. The move comes just days after Merz criticized the European Union as “too rule-heavy, too bureaucratic, [and] too slow,” a direct indictment of Brussels’ cumbersome regulatory regime, and a week after Merz aligned with Trump in opposition to the OECD’s proposed minimum global tax.
Germany has begun to lose its position as a leading industrial powerhouse. For the last half-decade, the German economy has experienced meaningful decline, spending the last two years in recession while exports have fallen for three consecutive years. In May alone, auto manufacturers were hit hardest when exports fell 1.4% as American sectoral tariffs went into effect, accelerating the decline of Germany’s export economy.
These tariffs have only further exposed the shortcomings of nearly a decade of overly cautious conservative rule. The CDU has had to reconcile its industrial policy with the left-leaning members of its ruling coalition, while maintaining obligations to the EU.
When Friedrich Merz was sworn in as Chancellor last May, many feared a continuation of negligent rule. When asked about the possibility of radical economic action akin to that of Argentinian President Milei, Merz commented, “[Milei’s] policies would ruin the state,” worrying many that he lacked the resolve necessary to fix an ailing German economy.
Merz’s latest comments have helped assuage these fears, with his newly announced initiative hinting at a drastic change in position. At a recent press conference, Merz stated that his cabinet was taking “cutting red tape seriously,” signaling a shift in economic priorities and a further departure from Brussels.
Fortunately for Merz, pursuing a deregulation policy will not only help rekindle a strong German economy—it could also address many of the concerns motivating Trump’s targeted tariffs.
A slew of regulations, from both the EU and Germany, have disproportionately harmed American companies, leading to reduced U.S. capital investment in Germany and increased trade hostilities between the two countries. Merz has already taken a clear stance against the EU’s overregulation of multinational business, calling for the EU to withdraw support for a global minimum tax.
It’s imperative that Merz maintains this stance, advocating against many of the EU’s more burdensome regulations—including the strict AI regulations under the AI Act set to devastate innovation, the General Data Protection Regulation which has drastically raised the cost of doing business in Europe, and digital service taxes, such as Germany’s own proposed 10% DST.
Ultimately, the strict regulatory regime built in Brussels and long backed by Berlin continues to present a barrier to European growth and transatlantic trade. By committing to deregulation and more closely aligning with President Trump’s low-intervention, pro-growth strategy, Merz has an opportunity to eliminate the red tape entangling the German economy while also allowing for more fruitful trade negotiations—at a time when transatlantic dialogue appears stalled.
