What is the right course of action?

You chose correctly. In this situation, you are on the priority road, as indicated by the yellow diamond traffic sign on your side. This means you have the right of way at the intersection. The tram and the red car must yield to you. In Germany, trams have priority only when there are no other road signs or signals regulating the right of way. Here, the priority road sign takes precedence, so you may proceed first. Remember, always check for priority road signs and only give way to the tram if there is no priority sign for you.