The conflict between the US and China over Taiwan also affects us directly. If trade between Germany and China stagnates, it endangers our prosperity – above all because we have long been more dependent on the Middle Kingdom than vice versa.
An iPhone contains inputs from around 200 companies from 40 countries. But even electric toothbrushes are a product of globalization with umpteen participants – many of them from the Far East.
When it comes to the question of how dependent Germany is on China, there are two sides to consider: China is a very important buyer of our goods. German manufacturers sell about every third car to the Middle Kingdom, VW currently even every second. On the other hand, we import Chinese goods, preliminary products and raw materials in bulk: around every second industrial company needs supplies from China.
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The German Economic Institute (IW) has examined the mutual dependency with the result: Germany is much more dependent on China, especially on the export side, but also on the import side, than vice versa. Most recently, China imported only half as much from the EU as the country delivered to Europe. Such imbalances indicate a high degree of dependency. This also applies in particular to Germany. According to the Federal Statistical Office, almost twelve percent of our exports go to China.
The situation is similar in foreign trade: With a goods export share of 7.6 percent, China is about twice as important for the German economy as, conversely, Germany is an export partner for China with only 3.4 percent. “The EU and Germany have almost consistently increased their export dependency on China. Especially in the course of the global financial market crisis after 2008, when demand from other German export partners plummeted, China was able to significantly increase its importance thanks to extensive economic stimulus programs,” says Jürgen Matthes, head of the IW’s International Economic System and Economy department.
With regard to jobs, the dependency seems to be the other way around at first glance: while 4.1 million employees in China depend on trade with Germany, there are “only” 1.1 million in this country who produce goods and services for the Chinese market . Measured against the country’s population, however, this number is put into perspective. Conversely, according to IW calculations, 61 million Chinese jobs depend on business with the West, which is a good eight percent of all employees in the country.
What worries some economists is this trend: While the EU and Germany continue to expand their trade shares with China, China has been reducing its dependence for several years. In 2007, 4.4 percent of the entire Chinese added value was still dependent on end consumption in the EU, but recently it was only 2.2 percent.
This trend is likely to continue because the Chinese government wants to further reduce its dependency on foreign countries. “If this development were to continue, the EU would become significantly more dependent on China in the medium term than vice versa. It is therefore high time to reduce the EU’s and Germany’s dependence on China,” says Jürgen Matthes from the IW.
After all, a rethink has set in in this country: In the course of the Ukraine war, many German companies stated that they wanted to reduce their dependence on China. According to a survey by the Ifo Institute from February 2022, 45 percent want to do this.
The number is likely to be even higher now. The companies have recognized how vulnerable the long transport routes are. And that non-democratic governments like those in China are more unpredictable: the massive lockdown in Shanghai, for example, came as a shock to many: supply chains were interrupted, the production lines in Germany were also at a standstill.
With some products, however, it is difficult to break away from China: Magnets, projectors and amino acids, for example, are considered so-called critical industrial goods. In addition, various raw materials that can hardly be obtained anywhere else in the world or only at significantly higher prices – above all the so-called rare earths.
Economists are betting that German politics will also help and initially reduce additional incentives for business activities in China. In addition, economists advise more diversification, i.e. more trade with emerging countries in Asia, Latin America and Africa.
The first task is to reduce trade barriers such as tariffs that still exist with these regions. New supplier countries are needed, especially for raw materials and new sales markets. The Europeans have to stick together, because the internal market is the basis of our prosperity and is of paramount importance.
The Ifo Institute comes to the conclusion that “from a macroeconomic perspective, China plays an important, but by no means dominating role compared to other trading partners, both as a supplier and as a sales market for Germany”.
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The article “Why the Taiwan conflict is extremely dangerous for the German economy” comes from WirtschaftsKurier.
