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.
What will be the impact of technical progress?
I am sure that the digital transformation of industry will have a huge impact on the world economy during the next decade. Digitalisation will significantly change existing value chains and the parameters of competitiveness in industry. Our companies have to remain highly innovative and adopt digitalisation as a front runner. They need to be very attentive to positive and negative developments in international markets. In order to shape globalisation and develop answers to these challenges, Germany has to actively participate in the debate on forging international solutions. For instance, the BDI supports G7 and G20 processes by contributing to the outreach to the business community.
And what are the effects of increasing globalisation on politics? Where should political strategies be reconsidered?
The main challenge might be a new wave of globalisation. After the globalisation of communication and the globalisation of goods, services and value chains, the next wave is probably the most difficult to deal with: the globalisation of human migration. Migration has always taken place: from rural areas to cities, from densely populated to less populated areas, and from poor, instable and war-prone countries to safer regions. The new element is the constant influx of a high number of migrants and refugees to already highly populated areas. This is perceived by societies as a challenge to their culture and living standards.
What does this mean for politics?
Globalisation is not a one-way street. It requires countries that have greatly benefitted from this process to shoulder responsibility for global issues and to involve themselves in combatting even the most remote crises. The international community must succeed in peacekeeping in civil wars, rebuilding failed states and creating income in poor countries. Otherwise, the influx of refugees might overwhelm the societies in the rich states. This interdependency has to be communicated to the public. Neither Europe nor Germany can be isolated from world affairs.
Under the pressure of globalisation, does politics lose the ability to effect change?

The ability to react effectively to political change has become far more difficult in recent times. The globalised world is very complex. Governance takes place on several levels: in multinational institutions like the WTO and the United Nations, in regional bodies like the EU, on state and local level. All these levels interact and compete with each other. In addition, emerging markets and countries like China, India and Brazil are staking their claim in shaping world affairs. They are less and less prepared to accept the international rules defined by the West.

Moreover, we have many non-state players who possess the capacity to influence politics – not only businesses but NGOs and other civil society groups. Lastly, we have military and terrorist groups that are increasingly challenging the existing order.

So politics has lost effective power?
Partially. However, we also see encouraging signs. Governments and international institutions are still able to shape globalisation. They should use their influence to strengthen regional and global agreements, expand the rule of law, and create a global level playing field for business and people.