Berlin No more washing machines from Miele, no more shoes from Deichmann, no saws from Obi. In addition to large corporations, numerous German medium-sized companies are also withdrawing from Russia as a reaction to the Ukraine war. Detachment from Russia could be just the beginning. There is concern that China could soon disappear as an economic partner.
What would then remain in order not to risk massive sales and thus prosperity: significantly increased trade with western partners, above all the USA. However, the EU Commission and the German government are standing in the way of strengthening trade relations with the West. This is the result of a study by the economist Gabriel Felbermayr.
Berlin and Brussels are therefore increasingly abusing trade policy for other political goals and overloading it with climate protection measures, social standards or labor rights. According to Felbermayr’s calculations, EU trade agreements now contain far more than twice as many goals compared to 1980 that have nothing to do with trade.
The economist is a member of the Scientific Advisory Board of the Federal Ministry of Economics and President of the Austrian Institute for Economic Research (Wifo).
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In the debate so far, the United States and China have been seen as those using trade as a foreign policy weapon. But: “The EU’s idea of a harmless player in terms of trade policy is not correct,” says the study for the Foundation for Family Businesses, which is available to the Handelsblatt.
And this applies in particular to Germany: in the past 15 years, the Federal Republic of Germany has introduced the third most trade-damaging measures worldwide – only China and the USA are ahead.
The conclusions of the study are contrary to the trade policy course taken in Berlin and Brussels. The Russian crisis has made it clear that more trade with the West is needed. Federal Finance Minister Christian Lindner (FDP) has already called for a new edition of the American-European trade agreement TTIP.
But the dogma of most politicians is: “Change through trade” has failed, European values cannot be spread through trade, they must be written right into the treaties.
6000 euros annual damage per capita threatens
This approach is already ensuring that the economic advantages of free trade are being lost – especially in Germany. “Companies are often internationally oriented and dependent on free and predictable access to international sales markets,” says Rainer Kirchdörfer, Chairman of the Foundation for Family Businesses.
Due to the protectionist measures imposed over the past decade, per capita income is 1.6 percent lower than if trade had not been further blocked since 2011 – a loss of almost 700 euros for every German citizen, the study calculates.
If trade were to be blocked in the future to such an extent that the EU would only trade with itself, there would be a loss of income of more than 6,000 euros per capita.
What does this mean for the future of European and German trade policy? So far, those responsible leave no doubt that they want to strengthen their course rather than slow it down. Above all, the French EU Council Presidency, which has been in office since the beginning of the year, has the goal of a “sustainable and resolute trade policy”.
This includes the CO2 border adjustment system, which aims to introduce an import fee for foreign companies. In this way, foreign importers are to be deprived of the competitive advantage they have if they do not have to pay a CO2 price.
The concern: the importers could turn away from the European market, economic advantages from the international division of labor would be lost.
The European supply chain law is also set to become a reality in the coming months. It obliges companies to check their suppliers for compliance with labor and social standards.
“Then the strategy becomes protectionism”
The German government’s trade policy agenda also shows this clear impact. The ratification of the CETA trade agreement with Canada, for example, is still in the balance. According to the coalition agreement, the SPD, Greens and FDP want to “promote trade and investment with high environmental and social standards”.
In principle, this is a commendable idea, says Lisandra Flach, head of the Ifo Center for Foreign Trade. “The government just has to be careful not to overdo it. Then the strategy becomes protectionism,” says Flach.
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The trade expert and parliamentary group leader of the Greens, Katharina Dröge, cannot understand the criticism of the political plans in Berlin and Brussels. Rather, the standards could strengthen the competitiveness of European companies.
“Competitive companies from other countries cannot simply import their goods into the EU, which they may have produced under much cheaper conditions that are more harmful to society or the climate,” argues Dröge.
The problem: In the event of a decoupling from China, the EU would probably not have the choice of forgoing imports from other countries and only trading among the member states in view of the economic damage. The Felbermayr study estimates the damage if Europe were to be self-sufficient at 500 billion euros per year.
However, Dröge also points out: “Trade policy is the most powerful instrument to ensure that countries do not become disconnected in the first place.” But Felbermayr counters that this instrument can only be used once comprehensive trade relations have been established – as with the current sanctions against Russia.
Demand for adjusted trade policy
How can both trade and standards be brought together? “The key is differentiation,” says Holger Görg, President of the Kiel Institute for the World Economy (IfW). Emerging and developing countries would adopt standards and thus also values from the West if these were enforced through trade.
“But that doesn’t work in the USA and Canada and isn’t even necessary in view of their value systems,” says Görg. Trade policy can also be used for other purposes, but not always and everywhere.
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