The overlooked problem of the China trip

The author

Sebastian Matthes is Editor-in-Chief of the Handelsblatt.

While Olaf Scholz is on the government plane bound for Beijing, Europe is arguing about the Chancellor’s trip. Officials in Brussels sneer that Germany is no ordinary country, but an industrial association that masquerades as a state because the federal government puts corporate profit-seeking ahead of Europe’s long-term interests.

Some critics even want to see a gesture of submission in the short trip by the chancellor and his business delegation. From industry, on the other hand, comes the well-known hint that Germany’s prosperity depends so much on foreign trade – and also on trade with regions that are not always the biggest supporters of the Western value system.

Now there are good reasons to discuss all these arguments, but that is not the topic here. The dispute over the chancellor’s trip to China reveals a much deeper problem: Germany lacks a geo-economic strategy.

The success of this country in recent years was based on open markets and steadily growing international trade, the federal government only had to open the doors internationally, the economy did the rest. But this model no longer works at a time when the economy is getting stronger becomes a political tool. We are experiencing an unprecedented politicization of the economy, to which the federal government has not yet found an answer.

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In no other major economy is this development as evident as in China. For years, Beijing has secured access to raw materials and transport routes and is driving independence in key industries such as the chip industry.

Geostrategic issues ignored for too long

But geopolitical considerations also influence economic policy decisions in the USA, as can currently be observed with US senators who are luring German industrial companies with tax breaks and cheap energy. The “Inflation Reduction Act”, the major reform passed by Joe Biden in the summer, is primarily aimed at accelerating the green transformation of the economy.

In fact, it is a subsidy program of historic proportions designed to bring lost industries back to the country. At the same time, the US government imposed an embargo on the sale of particularly powerful chips to China, which also affects European companies.

Geoeconomic strategies are those in which economic measures are used to achieve political goals – and vice versa. Such goals can be economic or technological dependencies, the supply of raw materials or energy, access to trade routes. But also the targeted technological weakening of other nations, as in the conflict between the USA and China. This geopoliticalization of the economy is a problem for Germany in particular, because geostrategic issues have long been ignored in the Berlin ministries.

The Chancellor does not even seem to recognize this problem. When asked whether he shouldn’t have waited for the federal government’s new China strategy for a trip to China, Scholz said: “It would be an absurd thought to first write papers and then do politics.”

There is no longer a world of free markets

An “absurd thought” is rather to go to China without a strategy. The federal government has left too many issues to industry alone in recent years.

Olaf Scholz

The Chancellor will meet China’s head of state and party leader Xi Jinping and Prime Minister Li Keqiang in Beijing on Friday.

(Photo: dpa)

This worked fine in a world of free markets, but that world no longer exists. Germany’s long-term prosperity now depends on whether the federal government succeeds in developing a geo-economic strategy that provides answers to the questions of how Germany secures the supply of raw materials and energy, protects critical infrastructure, secures communication networks – and above all : on which regions the German economy really wants to make itself dependent.

Such a strategy could be monitored by a national security council, which has been discussed for years anyway. But it is also clear that real geopolitical weight can only be achieved together with the other countries of the European Union.

There have been many attempts by the Commission in this direction, most recently the Global Gateway Initiative, the answer to the Chinese Silk Road Initiative, which, however, is stuck in the confusion of competences of the EU institutions. Ursula von der Leyen wanted to lead a geopolitical commission. It has never been clearer how important that would be.

More: “The chancellor must speak plainly” – what the German economy hopes for from the Scholz trip to China

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