Germany caught in middle amid growing U.S.-China rift

FPI / June 28, 2020

Germany appears reluctant to take sides amid increasing tensions between the United States and China.

"Of all advanced economies outside Asia, Germany has the deepest economic ties in both camps and would have the most to lose from a Cold War between Washington and Beijing," the Wall Street Journal noted in a June 24 report.

The U.S. was instrumental in helping to build modern Germany, and the two countries have been bound since the end of World War II by shared values, democratic institutions, and a web of international agreements and partnerships.

The U.S. is Germany's largest export market. In 2019, Germany exported $133 billion of goods to the U.S.

But Germany is resisting U.S. pressure to close its market to Huawei Technologies amid Washington's contention that the Chinese telecommunications giant constitutes an espionage risk.

China's authoritarian government and its horrendous record on human rights also worry Germany. This month, Germany signed on to a joint statement by the Group of Seven foreign ministers calling on China not to follow through with plans to impose national security legislation that essentially ends Hong Kong's autonomy.

"In private, many German executives say they are running out of patience with China’s bureaucratic obstacles, forced technology transfers, subsidies and assorted protectionist barriers long seen as the price for accessing the billion-strong market. Some are calling for Berlin to copy U.S. President Donald Trump’s tough approach to Beijing," the Journal's report said.

But China is Germany’s largest trading partner.

"Germany’s world-beating engineering companies supplied the factory equipment and the infrastructure that powered China’s transformation into the world’s top manufacturer," the Journal's report said.

For Germany’s influential auto manufacturers, China is the No. 1 market. In May, Volkswagen AG delivered 330,000 vehicles in China, up 6 percent from the previous year and accounting for more than half of its total global sales, the Journal's report noted.

“I can’t imagine Volkswagen without China,” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen.

A withdrawal from the Chinese market would be “economic suicide” for Germany, said Jens Hildebrandt, managing director of the German Chamber of Commerce in China. “What market in the world is a real alternative to China in terms of growth and growth potential?”

Over the past two decades, Berlin’s trade links with China and the U.S. have "provided it with steady growth, near full employment and full public coffers that have allowed the deployment of more than $1.13 trillion in measures to support its economy during the pandemic," the Journal noted.

"Seen from Berlin, any choice between China and the U.S. is finely balanced. Indeed Germany’s export-oriented economic model means it can’t really choose at all. It needs both," the report said.

Listed German companies make almost a fifth of their revenues in both the U.S. and China, said Jörg Kraemer, chief economist at Commerzbank in Frankfurt.

“Why should we pick sides?” said Jörg Wuttke, president of the European Union Chamber of Commerce in China. “Particularly in times of recession, that is the last thing anyone wants.”

Around 28 percent of jobs in Germany are directly or indirectly linked to exports, and in manufacturing that figure is 56 percent, according to the German Ministry for Economic Affairs. Germany exports nearly as much as the U.S. despite having only one-quarter the population.

Free Press International