What is the right course of action?

You answered correctly because you have the right of way in this situation. The key point is the yellow diamond traffic sign, which indicates that you are on a priority road. Vehicles on this road have the right of way over others, including the red car waiting to enter from the right and the tram on the left side.

In German traffic rules, trams usually have priority when no other traffic signs are present, but here your priority road sign takes precedence, so you do not have to yield to the tram in this case.

By understanding priority signs and the general right-of-way hierarchy, you can confidently determine when you are allowed to proceed first in similar scenarios.