Successful salespeople get on well with as many potential customers as possible. All federal governments of the past decades followed this maxim – and so products “made in Germany” were just as highly regarded in the mutually hostile Gulf States as by their common opponent Israel; the German economy delivered high-quality cars and machines to China and America as well as to India and Pakistan.
In addition, after the Second World War, Germany’s politicians maintained good contacts with the energy supplier Soviet Union and later with Russia – no matter how martial the tones from the Kremlin were.
Exports and imports add up to more than 80 percent in relation to the overall economic output. For comparison: in Japan and China these rates are a good third and in the USA only slightly more than a quarter.
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This export-oriented business model was not designed at the drawing board. Rather, the high proportion of industry and the associated export orientation have developed naturally over the past 150 years. The multiple revaluations of the D-Mark in post-war Germany acted as a productivity whip. And so the German economy became one of the most competitive in the world.
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This business model worked best when world trade was booming, as it was in the 1990s to the middle of the last decade – and trading partners observed the basic rules of world trade. Human rights violations could usually be ignored as long as they remained domestic. After all, there was hope that western values would also spread with increasing prosperity based on the western model.
With the illegal attack on Ukraine, Russia has now crossed a red line that makes it impossible to look the other way. Consequently, the federal government joined the tough economic sanctions against the aggressor. Admittedly, the high degree of openness now proves to be a disadvantage.
Deliveries of preliminary products from the Far East were already canceled during the corona pandemic, and some production lines were temporarily at a standstill. However, if gas, coal and oil were to stop coming from Russia all of a sudden, the entire industry would be threatened with a veritable recession. The Green Economics Minister Robert Habeck put the dilemma in a nutshell: “We can only decide on measures – and I can only take responsibility for them – that I know we will stick to and that they will not lead to serious economic damage in Germany.”
China is striving for a self-sufficient economy
China has recognized the danger of such dependencies. Under President Xi Jinping, the country is apparently striving to transform itself into a largely self-sufficient economy that is said to be less and less dependent on imports and foreign corporations.
China is opening up new sales markets, cheap production facilities and young workers along its “New Silk Road”. Foreign producers would only be welcome if they offer goods that the country cannot (yet) produce itself. The five-year plan, which is valid until 2025, provides for strengthening domestic companies and making them as self-sufficient as possible – which is nothing more than “America first” in Mandarin.
Control of raw materials is a key tool for China to achieve global technological dominance. An internationally isolated, resource-rich Russia would fit perfectly into such a China-centric network, as China lacks energy and food. In addition, these two giant empires share a deep aversion to the USA and the liberal, democratic lifestyle of the West.
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The Beijing leadership still seems to be unsure whether they should openly side with Russia – and thus run the risk of becoming the target of economic sanctions themselves. After all, a decoupling from the global economy would entail massive risks for China.
Prof. Bert Rürup is President of the Handelsblatt Research Institute (HRI) and Chief Economist of the Handelsblatt. For many years he was a member and chairman of the German Council of Economic Experts and an adviser to several federal and foreign governments. You can find out more about the work of Professor Rürup and his team at research.handelsblatt.com.
Without the still important transfer of technology from the West, it will hardly be possible to become the world’s largest economy and leading military power by 2049, the 100th anniversary of the Communist Party coming to power. An immediate change of strategy would also be dangerous for Xi, since the CP’s claim to power depends on the credibility of the promise of prosperity to the population.
Even if there were only an informal alliance between Beijing and Moscow, the result would be a split of the world into two blocs like during the Cold War. This would not only be a super meltdown for individual companies with a strong focus on China, but for the entire German economy. After all, a considerable part of the German economic growth in the past decades was based directly or indirectly on the rapid growth in the Far East.
Nothing works in this country without rare earths
If trade with China were to falter, not only would important foreign sales collapse, but production costs would also skyrocket due to higher raw material and intermediate product prices. Without rare earths from China, no windmill turns, no cell phone works and no electric car. The sharp sword China has with this monopoly was shown in 2020 when Beijing temporarily stopped delivering rare earths to Japan due to a territorial dispute, causing the world’s third-largest economy to skid.
In a new bipolar world, the economic power of the USA would inevitably also increase. Even German companies could not escape the increasing pressure to relocate more and more investments and jobs to the USA. Anyone who wants to sell their products on the world’s largest market in such a world will have to accept the rules of the game there and, along with the added value, will also have to relocate investment capital to the USA.
This development would be fatal for Germany, the big winner of globalization. The shrinking of the industrial sector would intensify the loss of prosperity that is already inherent in the aging population and reduce the financial resources required for the energy transition, digitization, national defense and, last but not least, social policy. Large-scale state aid, such as the latest energy cost relief package or steadily increasing subsidies to the social security funds, cannot help over this weak growth in the long term. The social market economy threatened to fail.
As is well known, hope dies last: the German economy coped well with the Cold War. In the past, German industry has shown itself to be very adaptable. In addition, a Sino-Russian friendship has never proved to be sustainable. Even today it is difficult to imagine Vladimir Putin in the role of a junior partner.
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