"Open borders and networking": Germany needs globalization

"Open borders and networking"
Germany needs globalization

High-tech nations like Germany depend on suppliers from all over the world – this is shown not least by the corona pandemic. A stronger isolation from the outside would hit the domestic economy hard, researchers calculate. Germany's prosperity depends on globalization.

According to an IfW study, sealing off global supply chains would damage Germany and other trading partners. A report by the Kiel Institute for Economic Research on behalf of the Impulse Foundation of the VDMA mechanical engineering association comes to the conclusion that Germany's prosperity is crucially supported by the international division of labor. "The Corona crisis has shown the vulnerability of international supply chains," said IfW President and government advisor Gabriel Felbermayr. "To draw the conclusion from this, to bring production back to the home countries, is extremely expensive and therefore the wrong way to go."

It would be better to increase the resilience of the economy, for example "through greater diversification in terms of suppliers, increased warehousing or the expanded use of recycling". A very restrictive due diligence law would be counterproductive. The supply chain law envisaged in the coalition agreement and planned by the federal government is intended to make German companies responsible for violations of human rights and environmental requirements in their global supply chains. The main points of contention are additional civil liability on the part of companies, the size of the company and whether all stages of the supply chain are included.

The IfW economists have run through a scenario in which the EU isolates itself more strongly through the use of so-called non-tariff trade barriers – i.e. through regulations or production standards that make it more difficult for foreign suppliers to access the market – "in order to achieve a relocation of foreign steps in the value chain". "According to the calculations, such a foreclosure would lead to an annual decline in real income in Germany of 3.3 percent." Measured against the German gross domestic product in 2019, income would be 114 billion euros lower. If a trade war breaks out and the rest of the world reacts with retaliatory measures, income even falls by 6.9 percent.

There would also be losses in the rest of the EU and worldwide. "The German economy will lose if we try to turn back globalization," declared VDMA Vice President Henrik Schunk. "Germany's business model in general and mechanical engineering in particular is based on open borders, exchange and networking." The industry sources almost 43 percent of its preliminary products either directly or indirectly from abroad. That is why mechanical engineering would suffer from isolation around three times more than the German economy on average.