Is Germany really threatened by deindustrialization?
Germany has benefited greatly from globalization, but today it is having difficulty managing the new phase of restructuring of supply chains. The analysis by Katharine Neiss, chief European economist of PGIM Fixed Income
Germany has benefited significantly from globalization. Its manufacturing base grew to support demand for exports from around the world, with buyers in other countries wanting German cars, electronics and pharmaceuticals.
ALL THE DIFFICULTIES OF GERMANY
The EU's largest economy has struggled of late, facing challenges on three main fronts: the war in Ukraine, foreign subsidies and the reshuffling of global trade routes. Added to this is the competition German automakers face from new entrants in the electric car market, creating a more challenging operating environment for an industry critical to the strength of the country's industrial sector. Germany's long-term challenges are compounded by tensions between the United States, a strategic ally, and China, Germany's largest trading partner. In 2022, trade between Germany and China grew by 21% compared to the previous year, reaching a record high. For the seventh consecutive year, China was Germany's largest trading partner.
THE GERMAN STRATEGY ON CHINA
However, in response to growing global tensions, the German government has adopted its first national strategy towards China, defined as a “systemic partner, competitor and rival”. As part of this policy, German officials aim to make the country's economy less dependent on Chinese imports while increasing export controls, following a path similar to the European vision of "de-risking".
POLITICAL CHANGES IN EUROPE
Other political changes have emerged in the region. Europe has countered new clean energy subsidies in the United States with its own stimulus package. In March, the EU eased state aid rules, allowing national governments to match subsidies that companies would have received in the United States. However, the United States has greater financial power and some manufacturers, even the pillars of the German industrial base, have directed new investments there. That raised the risk of a manufacturing flight from Europe, even as EU officials expressed confidence in their plan to remain competitive.
GERMANY'S PLAN AGAINST DEINDUSTRIALISATION
Germany has pledged $11 billion in financing to support the construction of a semiconductor manufacturing complex for Intel . It will also help finance a Thyssenkrupp plant with subsidies approved over the summer. However, small businesses are less likely to benefit from EU plans than large companies, and local subsidies are mainly directed at building production capacity rather than sharing production costs over time as in the United States. The shortcomings of this industrial policy underline the challenges facing the German economy, which relies on exports. With tensions rising between China and the West, Germany could look to its European neighbors for export growth – reducing its dependence on Chinese demand – and continue to craft its own policy measures aimed at stimulating domestic investment.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/germania-deindustrializzazione/ on Sat, 18 Nov 2023 06:57:03 +0000.