“Germany has benefited tremendously from global changes”
We are witnessing an ongoing trend to favour local companies and pursue a more protectionist policy agenda, says Dr Stefan Mair, Member of the BDI Executive Board. However, global changes bring about several new opportunities, too. Mair is certain that the digital transformation of industry will have a huge impact on the world economy during the next decade.
Germany exports goods and services worth more than one trillion euros annually. What made it one of the largest export countries in the world?
I believe that several developments have contributed to Germany’s success. Faced with rising international competition, German companies have focused on producing high-quality products and customized solutions. Moreover, they have managed to identify substantial niches and maintain technological leadership. Our companies started earlier than others to streamline production processes, create efficient global value chains, and look for customers in global growth markets. Small and medium-sized enterprises (SMEs) have played a crucial role in this process. And Germany is still the fourth largest industrial nation in the world and has stayed true to its industrial values!
How have changes in global politics and economics influenced Germany’s well-being?
Germany has benefited tremendously from global changes – political, economic and technological alike. The former socialist countries opened up after the Cold War, while new growth markets such as China and India emerged. At the same time, communication and transport costs fell rapidly. All this enabled German businesses to find new markets all over the world while maintaining their industrial base at home.
Finally, global economic growth in general has contributed to Germany’s success story. Prosperity and higher living standards have boosted demand. Premium cars, chemicals, high-quality machinery and electronic equipment made in Germany sell well when industrialisation processes are taking place and the middle classes are growing.
A globalised world with interconnected flows of goods seems to be the basis for this success.
Globalisation has undeniably led to more trade, economic growth and prosperity. However, the financial market crisis in 2007 and 2008 triggered an ongoing trend to favour local companies and pursue a more protectionist policy agenda. Between October 2014 and May 2015, the G20 countries introduced on average 17 new trade restrictive measures per month.
On a global level, what are the most common barriers to free trade?
Non-tariff barriers (NTBs) are becoming an increasing problem for the global activities of German companies. NTBs include import restrictions, complicated licensing requirements, mandatory technology transfer and local content stipulations. These measures are especially prominent in key emerging markets. The same is true for high tariffs. Customs tariffs and additional duties remain a common challenge for several industry sectors, like the car or textile industry. Tariffs and NTBs as well as regulatory divergences among countries are especially difficult to handle for our small and medium-sized enterprises.
Do rising geopolitical conflicts and risks also hamper international trade?
Definitely. The annexation of the Crimean Peninsula and the conflict in eastern Ukraine followed by sanctions imposed on Russia as well as the civil wars in the Middle East and state failure on the African continent have all hindered the expansion of trade.
What role does the European Single Market play in Germany’s export strategy?
The European Single Market has created a large domestic market for German products. A market of 500 million people not only generates additional demand but also fosters competition and innovation among producers. Europe’s market size can keep up with Asia and the United Sates. Nowhere else in the world are cross-border production networks as highly integrated as in Europe. The German car manufacturing industry is densely interwoven with northern Italy, Austria, the Czech Republic, Slovakia and Poland.
Supranational value chains are no longer hampered by border controls and currency calculations. The introduction of the euro has lowered transaction costs and increased price comparability. The European Single Market offers new growth potential and is a stepping stone to international markets, especially for SMEs. Expanding sales and production processes to other European countries is usually the first step for many SMEs before they turn to markets outside Europe.
How important is the European Single Market nowadays?
The common market remains crucial to German industry. German companies deliver more than two thirds of their exports to our European neighbours. They also source roughly two thirds of our total imports from EU partners. Moreover, Europe is the world champion in industry service integration. The joint production of industry and services combined contributes twice as much to total value added in Europe than the global average. The European Single Market is a win-win situation for all participating countries.
Looking back on Germany’s success story might give an impression of interminable progress. How is the global economy expected to change over the next ten years? What subsequent challenges will the German export industry face?
There is no free lunch, especially not on global markets. I have mentioned protectionism and the unsolved conflict between Ukraine and Russia. Geopolitical risks are a heavy burden for traders. The political instability in North Africa and the Middle East will continue to affect us for years to come. The refugee crisis is currently challenging Europe’s ability to give joint answers and keep internal borders open. There are also indications that globalisation might slow down. For instance, take the growth rates of global trade. They used to be about twice as high as global economic growth rates. Nowadays, both figures are almost identical at the lower level. In several emerging markets, necessary reforms for higher growth rates are still blocked politically.
How can Europe manage these challenges?
Over the next ten to fifteen years, we assume that more than 90 per cent of world demand will be generated outside Europe. With the rise of new economic players such as China and India, we will also continue to see new competitors trying to contest our leadership in innovation and quality. It is therefore essential that we stop protectionism and fight global conflicts. We need to foster international cooperation on various levels. The G20 have already taken initial measures against protectionism. The multilateral trading system of the WTO needs to be reinvigorated. The WTO’s successful agreements on trade facilitation and information technology will have a positive effect on international trade. The EU has drawn up additional trade pacts with for instance the US, Southeast Asia and Mercosur, which are important tools for Europe to create a favourable environment for market access and fair competition.