The Americans are stirring up the international market for new technologies with billions in subsidies. The German economy is also suffering as a result. Minister Robert Habeck announces that politics will now interfere more in the free market.
The German economy has caught up in a dangerous pincer movement. The crazy thing is that both arms of the tongs are not moved by Russians or Chinese, but by Americans, who are apparently determined to organize their future prosperity at the expense of Chinese and Europeans.
Trump left, his motto remained: America First.
Because one does not want to celebrate this excessive elevation of one’s own nation – especially under a democratic president – American security interests on the one hand and the fight against inflation on the other are cited as reasons for going it alone.
The pliers consist of two very different legs:
1. The American Inflation Reduction Act (IRA) is primarily aimed at reducing inflation in the USA. In truth, however, it is a gigantic subsidy program in favor of the new technologies.
The legislative package envisages spending $369 billion over the next ten years on energy security and climate change programs, putting pressure on European industry. Go or stay? According to France’s finance minister Bruno Le Maire, in some cases the subsidies offered by the US government are four to ten times the maximum government support allowed by the EU Commission.
We learn: It says anti-inflation, but industrial policy is inside. The USA wants to strengthen its industrial base again.
2. The US government’s sanctions against China’s semiconductor industry put the Middle Kingdom under pressure on the one hand. Since the beginning of October, Washington has restricted the export of production technologies that are needed to set up its own chip production in China. US manufacturers Nvidia and AMD now have to obtain government approval for the export of selected semiconductors.
Research and development and the maintenance of existing Chinese semiconductor production are also hampered. It’s all about slowing down China’s technological catch-up race in self-driving cars, 5G Internet, cloud services and artificial intelligence.
It is not entirely by chance that German industry is also suffering from the restrictions. One-fifth of the global semiconductor industry is accounted for by Chinese manufacturers, whose European customers and suppliers are required to follow US policy. According to Bloomberg, the Dutch company ASML was pressured “by US officials” to stop selling selected chip-making machines to China. Among others, Alan Estevez, the undersecretary for industry and security, will travel to the Netherlands later this month to discuss export controls with the government there, according to Bloomberg.
Meanwhile, the USA are positioning themselves as a friendly alternative: The export ban came two months after US President Joe Biden signed the so-called CHIPS Act. 280 billion US dollars are invested from the state treasury to boost semiconductor production on American soil. European companies are also cordially invited to invest.
And how are business and politics in Germany reacting to this?
In the case of the American billions in subsidies under the IRA, Economics Minister Robert Habeck woke up with a time delay.
“Protectionism paralyzes innovation. It’s not so much about losing our industrial heart as it is about the risk that the next wave of technological innovation won’t happen in Europe. Because the IRA takes care of the cool new stuff.”
When the USA pushes against China, however, German industry is alone. Habeck and Scholz pursue a so-called de-risking strategy. For the chancellor, business as usual with China is no longer an option. He makes it clear: “If China changes, the way we deal with China must also change. “
The head of the industry association BDI, Siegfried Russwurm, energetically rejects the idea of moving away from the Chinese market. “I see no reason why we should sell less to China. “
His member companies are putting pressure on him to dare a little dance with the Americans and, if necessary, with his own, hitherto unreasonable, government:
• The Volkswagen subsidiary Traton is expanding its business in China, regardless of American China policy. A truck plant is currently being built in Rugao near Shanghai, which will start production as early as 2025. The SPD and IG Metall side on the supervisory board have agreed.
• BASF CEO Martin Brudermüller also defends his 10 billion euro investments in Zhanjiang. 60,000 tons of engineering plastics are to be produced there annually for customers in China. He advises realism: “I think it is urgent that we get away from China bashing and look at ourselves a little self-critically.”
• According to the German Institute for Economic Research, German companies invested a total of over ten billion euros in China in the first half of 2022 – a record high.
• After the USA, China is the second largest export market for the German economy. German industry mainly sells cars and industrial plants there. The German mechanical and plant engineering sector from Baden-Württemberg is particularly affected.
With the United States – their economic interests and their representation in the White House – the German economy this time has a powerful opponent in front of its chest, because it is assertive. The concept of “managed trade” that left-wing US Democrats have been propagating for years has replaced the old free trade doctrine in Washington.
The German economy cannot unconditionally count on the Green Economics Minister in its fight for open markets. As Habeck explained yesterday in Paris, the politicization of trade relations corresponds exactly to his ideas: “The phase in which many thought that markets should rule and politicians should stay out of it is definitely over. That idea was wrong before.”