Europe Must Drive Open and Fair Globalization

© Christian Kruppa

Globalization was, and is, a key driver of prosperity and economic growth worldwide. The road back to nationalism is a blind alley – both for the United States and for the entire global economy. The economic policy of the new U.S. administration leads to great uncertainty. We must make clear that Europe will not allow itself to be divided, emphasizes BDI's President Dieter Kempf in this interview.

U.S. President Donald Trump preaches “America First”. He and his team have announced that they will renegotiate or even withdraw from free trade agreements, introduce or raise tariffs, and close borders. Trump’s criticism of globalization has attracted many voters during the election campaign. What do you make of all this?

One thing is clear: globalization was, and is, a key factor of prosperity and growth worldwide. According to the World Bank, hundreds of millions of people have managed to escape from poverty thanks to globalization. However, there are also reasons for criticism. Not everyone is benefiting sufficiently. I can understand that many people find globalization too rapid and too complex. Policy-makers and business must come up with convincing responses to meet this challenge. That includes, among other things, improving the educational system and boosting domestic investment. In any case, the road back to nationalism is a blind alley – for the U.S. economy, for the entire global economy, and for international peace and stability. Security, migration, growth, new jobs, climate change, resource scarcity – we can tackle today's challenges only if we join forces. Without the United States we will not succeed. The same holds true for the challenges presented by the digital transformation. Not only must we forge a closer alliance with the United States; we, too, in Europe must cooperate more strongly and at the same time step up our international activities.

What precisely does German industry expect from Donald Trump’s economic policy? Where are the opportunities and where the risks?

Not everything about Trump's plans is bad. There is a huge deficit in hard as well as soft infrastructure in the United States. To enable future-oriented growth, the Administration needs to address this deficit. It also makes a lot of sense to reform the corporate tax code. However, I also see three major risks. First, the Trump administration could implement new tariffs and thus disrupt regional and global supply chains, heralding a trend away from free trade and the rules-based trading regime towards beggar-thy-neighbour policies. This would damage the entire global economy, especially the export-oriented German economy. Our country benefits considerably from globalization – not just from exports but also from investing abroad and from imports and foreign companies investing here. The same holds true for the United States. Second, I fear that the Trump administration could discriminate against foreign companies through new “Buy American” rules. The U.S. procurement market today is already less open than the European market. But it could get a lot worse. This would not only hurt German companies, which are already heavily invested in the United States, but also U.S. consumers. It is in the interest of the consumer to get the best good or service available – no matter if it is offered by a U.S. or German company. Third, I find some aspects of the proposed tax reform deeply worrying. Not only would the proposed Border Adjustment Tax make exports to the United States much more expensive, it would also not fulfil its purpose of bringing back manufacturing jobs to the United States. Furthermore, tax cuts and investments without sound financing could raise the level of public debt and thus call into question the stability of the U.S. economy as a whole. Donald Trump has still not explained how he intends to finance his ambitious infrastructure investment and tax plans.

How can we respond to Donald Trump’s isolationist plans? What concrete action can German industry take?

Industry is globalized; value chains are becoming more and more global. That is not going to change. For this reason, German industry has a major interest in strong relations with the United States, our most important export market for goods. We must make use of as many communication channels as possible, not just with the Trump Administration but also with Congress. During my visit to Washington in early April, I had the chance to talk to Commerce Secretary Wilbur Ross, to Congressmen and -women as well as to business representatives. My message was that German companies contribute to economic growth, job creation, exports as well as training and education in the United States. Our office in Washington D.C., the Representative of German Industry and Trade (RGIT), has just published facts and figures regarding German investment in the United States (“German Business Matters”). Furthermore, the role of Europe is crucial: if Donald Trump promotes isolation and an “America First” strategy, then we Europeans should push even harder for a global economic order whose hallmark is not isolation but rather trade and cross-border cooperation.

Is the EU able to do that right now?

Through openness and trade, Germany and Europe have become not only economically strong but also internationally competitive. For this reason, it is all the more important that EU trade policy functions properly. The EU and its Member States should quickly clarify outstanding issues over competences. We also need to work harder to explain the effects of globalization and offer solutions to those who feel left behind. I am convinced: Only if the EU speaks with one voice, we will be able to shape globalization according to our interests and values.

As chair of the G20 this year, the German government has a particular responsibility to speak up for trade and open markets. The Baden-Baden Communiqué of the G20 Finance Ministers and Central Bank Governors was disappointing in this regard. Unlike in previous G20 cycles, the G20 did not reaffirm its commitment to the protectionist standstill and rollback. We hope that the G20 Leaders will more firmly commit to open markets at their summit in Hamburg, July 7-8. Together with BDA and DIHK, BDI chairs this year’s Business 20 – the official outreach of the G20 with the business community. Over the last eight months, more than 700 business representatives have worked on recommendations to the G20. The message is clear: The B20 supports open and inclusive trade. Even if the U.S. administration wants to swim against the tide of globalization, there is no stopping that tide!