German Chancellor Friedrich Merz expects Donald Trump to continue bypassing Congress despite midterm electoral losses, indicating that the president can likely maintain executive-driven policy without requiring legislative approval.
German Chancellor Friedrich Merz has publicly signaled an expectation that President Donald Trump will continue to govern through executive authority, sidestepping Congressional opposition even after the Republican midterm losses. This reflects a deeper calculation about the structural dynamics of the current U.S. presidency — Merz is essentially reading Trump's political DNA rather than relying on institutional norms. The core logic here is that executive overreach has become a normalized feature of this administration, driven by a coalition that prioritizes decisive action over legislative consensus. The triggering factor is likely a combination of recent executive actions on trade, tariffs, and diplomatic arrangements that bypassed traditional congressional channels, coupled with Merz's need to calibrate German policy expectations toward Washington. The real contradiction beneath the surface is between institutional checks and balances and the populist executive style that dominates the current American political landscape.
The implications of a President operating primarily through executive orders and decrees are profound across multiple dimensions. On the trade front, unilateral tariff decisions and trade agreements crafted without Congressional ratification can shift globally within hours, creating severe uncertainty for multinational supply chains that depend on stable regulatory environments. European industries, particularly German manufacturing and automotive sectors, face heightened vulnerability as executive trade policy tends to prioritize bilateral leverage over multilateral frameworks. The competitive landscape within Europe is also affected — nations with closer ties to an unpredictable U.S. administration may gain temporary trade advantages, potentially fracturing EU unity on transatlantic policy. Pricing mechanisms for energy, autos, and industrial inputs could experience volatility spikes whenever executive actions signal policy direction without legislative grounding. From a regulatory perspective, the erosion of Congressional oversight creates a precedent where trade policy, environmental standards, and diplomatic commitments lack democratic legitimacy, potentially prompting European counterparts to fast-track their own regulatory independence initiatives. This could accelerate EU strategic autonomy debates and reshape long-term alliance economics.
In the short term (1-3 months), markets are likely to pricing in continued executive-driven policy volatility, with periodic sell-offs triggered by unpredictable announcements on tariffs, defense spending, or NATO commitments. European equity markets, particularly DAX-listed export-oriented companies, will face elevated risk premiums. The medium-to-long-term trajectory (6+ months) suggests a structural recalibration of transatlantic economic relations. If Trump maintains an executive-first governance model through potential further midterm losses, the U.S. will operate increasingly as a policy island, forcing European partners to develop hedging mechanisms and alternative trade architectures. The industry cycle position for export-dependent sectors remains sensitive to policy shocks rather than fundamental demand drivers. Combining this with the broader macro environment — persistent inflation concerns, energy transition costs, and geopolitical fragmentation — the most likely evolution path involves strengthened EU fiscal integration efforts and accelerated diversification of European trade partnerships away from unilateral U.S. policy exposure.
Manufacturing and Automotive — Hurts. German exporters face direct exposure to unilateral tariff actions and trade policy shifts issued through executive orders. The transmission path is immediate: policy announcements disrupt cost structures and force rapid supply chain reconfigurations, with lagged effects on earnings appearing within one to two quarters.
Defense and Aerospace — Mixed to Hurts. Executive-driven defense procurement may favor bilateral deals over NATO-coordinated spending, creating uncertainty for European defense contractors who rely on standardized allied procurement frameworks. Timing is highly event-driven.
Energy and Industrial Inputs — Hurts. Unilateral trade and environmental policy can disrupt energy commodity flows and carbon regulation alignment, affecting input costs for energy-intensive industries. Transmission is gradual but compounding over six to twelve months.
Financial Services — Neutral to Hurts. Policy unpredictability increases compliance costs and cross-border transaction friction, though trading volumes may temporarily benefit from volatility. The effect materializes across multiple quarters.
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