Berlin For months, companies have been suffering from a lack of material, whether microchips, raw materials or fuel. Economics Minister Robert Habeck (Greens) called the bottlenecks onto the scene. With billions in subsidies, the minister wants to bring factories for the production of semiconductors to Germany in order to reduce dependence on Asia, among other things.
The advance once again raises the question of the state of technological sovereignty in Germany and Europe. The three-day “Europe 2022” conference co-hosted by Handelsblatt, which starts this Monday, should provide answers. Also present: Europe’s political elite, including Habeck, President of the EU Commission Ursula von der Leyen and France’s Finance and Economics Minister Bruno Le Maire.
Globalization had already slowed down before the pandemic. But when Corona also blocked supply chains, German companies in particular were hit hard. Is the turbo globalization of the past decades finally over?
Five analyzes of current trade flows and future scenarios for Germany allow for a clear conclusion: globalization has not come to an end. But it is fundamentally changing.
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1. Germany trades more with foreign countries than ever before
Despite delivery bottlenecks, German foreign trade is booming. Germany exported goods worth more than 125 billion euros in November alone, while imports totaled 114 billion euros – both record values. At the same time, economic output has even been declining since late autumn.
“We had a perfect V in world trade,” says Gabriel Felbermayr, Director of the Austrian Institute for Economic Research (Wifo). After the downturn, the phase of stagnation in world trade that many had expected did not come.
The development is being driven by the above-average global demand. Because people couldn’t spend their money on services such as cinema or hairdressing during the lockdown, they invest it in goods instead. However, production is still limited due to supply bottlenecks. Germany’s foreign trade could therefore increase much more.
Despite Omikron, it is not yet foreseeable that there could still be a slump. Foreign demand had recently declined somewhat in December. However, it is still well above the pre-crisis level.
2. Significantly faster recovery than after the financial crisis
The global financial crisis of 2008 has already changed globalization for good. While the global trade volume grew around 1.5 times as fast as the global economy from the early 2000s until the financial crisis, trade and economic output increased at only the same rate up to 2019.
For some opponents of globalization, the pandemic seems like the ideal farewell to internationalization. But the opposite is the case: German foreign trade has recovered from the problems much faster than it did then.
A little over a year and a half after the outbreak of the corona virus in Germany, exports have already reached the pre-crisis level again. After the financial crisis, that took more than four years.
3. Germany cannot afford to end the division of labour
The fashion group C&A is rethinking: The company has not built a new factory in Asia, but in Mönchengladbach. C&A wants to produce up to 800,000 jeans per year there. Can that be a blueprint for the entire German economy?
The Ifo Institute has calculated what would happen if all production were brought back to Germany – this is called “reshoring”. According to the model, German economic output would fall by almost ten percent.
“If there were a global trend towards more nationally oriented supply chains, there would be a lot at stake for the German economy,” says Lisandra Flach, Head of Foreign Trade at Ifo. The economic output of German trading partners would also shrink.
In addition to “reshoring”, “nearshoring” is being discussed, in which production would be located in the EU, in North Africa and in Turkey. But this approach would also reduce the German economy by 4.2 percent.
After all, in 21 of 65 sectors of the German economy, bringing production back would have positive effects – but these only make up a fraction of German economic output.
There is also a trend in politics to rebuild production facilities for key sectors in Germany. Economics Minister Habeck promotes the development of a chip industry or wants to become more independent of energy imports and thus of Russia. However, Felbermayr warns against mixing these special cases with “any dreams of self-sufficiency” of a fundamental nature.
In addition, the ecological transformation of the economy will increase dependence on imports, for example in the form of lithium for electric car batteries. “The whole decarbonization will mean that we need raw materials on a completely different scale,” says OECD economist Nicola Brandt.
4. Companies are broadening their supply chains
If the international division of labor stays the same, what should be done about supply bottlenecks? This question also concerns the medium-sized company Elektronik Reichelt in Sande, Lower Saxony. “Complex components such as microprocessors cannot easily be produced in Germany within a short period of time,” says product manager Christian Reinwald.
The company has to look for alternatives: diversification and buffers. “Instead of just relying on one supplier, you should find backup suppliers to reduce risk,” explains Reinwald.
So far, the supply relationships of German companies have not been particularly diverse. One third of imports that do not come from other EU countries, Switzerland or Great Britain come from China and one sixth from the USA.
But the supply bottlenecks are causing people to rethink: more than half of German companies want to adapt their supply chains, according to a survey by the German Chamber of Industry and Commerce (DIHK). 78 percent attach importance to reliability. The price-performance ratio only plays a role for two-thirds.
In addition, stocks held by companies are likely to increase. “There will not be a complete abandonment of just-in-time production,” suspects economist Jürgen Matthes from the German Economic Institute. “But most will build up a crisis buffer.”
5. Germany has to open up new export markets because of China
After China joined the World Trade Organization WTO in 2001, the exchange of goods increased enormously. Today the country has grown from the world’s workbench to one of the most powerful economies – and wants to become independent.
While the growth rates of German exports to the People’s Republic were generally between ten and 30 percent in the 2000s, growth in 2019 compared to the previous year was just 3.2 percent. “The German economy must open up new growth markets for its exports,” says Matthes.
The figures clearly show that saying goodbye to foreign trade and the international division of labor is out of place. Nevertheless, companies are rethinking. The globalization system is being revised.
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