Whether for IT services from the USA, chips from Taiwan or uranium ore from Russia: Germany depends heavily on other countries. But what to do? A panel of economists puts proposals on the table.
To ensure less dependency on critical goods, advisors to Federal Economics Minister Robert Habeck (Greens) are calling for greater coordination at the European level. The risks are particularly great for Germany, writes the ministry’s scientific advisory board in a report entitled “Guidelines for strengthening security of supply”, which was published in Berlin on Tuesday. “The German economy, characterized by a still strong industrial core and a high degree of openness, is particularly badly affected by uncertainty in international supply chains.”
The experts write that trade statistics do not indicate a great dependency on individual importing countries – but things could be different for important raw materials. In 2019, before the corona pandemic, uranium ore came from just two supplier countries, including Russia. 19 substances important to the pharmaceutical industry came from a maximum of three countries, as did highly specialized goods such as telecommunications satellites, refrigerated ships and dredgers. China is significantly further ahead than the EU or the USA in its effort to put its supplier relationships on a broader basis.
“A decoupling of Germany would be particularly painful in the area of electronic products such as chips from the most important Asian manufacturing countries (Taiwan, China, Japan and Korea). In the short term, there would be a real loss of value added of around 13 billion euros,” write the economists. Similar high losses would arise if imports of IT services from the USA were no longer possible. The current decoupling from Russian energy products such as gas and oil even costs around 20 billion euros.
Warning against political activism
However, the scientists warn against political activism when dealing with such risks. “There is a risk that hectic policy measures to contain these fluctuations are counterproductive because increasing supply typically takes time and therefore often only becomes effective when shortages have already diminished,” they warn. “Ill-considered measures based on short-term needs also run the risk of not taking future shortages into account.” Reliable identification of strategically important goods and services is hardly possible. Scientists are skeptical about the creation of “lists of critical goods, technologies or sectors” for government support.
Experts see EU free trade agreements as an important instrument. In the future, they advise, it should be less about opening new markets for European products and more about procuring important goods. They welcome agreements on critical minerals, such as those the EU is planning with the USA and Chile. When it comes to securing foreign investments by German companies, such as those offered by the Federal Republic through Hermes guarantees, criteria such as securing the supply of raw materials should play a greater role. Better framework conditions for recycling are also important.
Trade policy is largely determined by Brussels
In order to ensure the supply of important goods, public purchase obligations could also make sense under certain conditions, the scientists write. So-called capacity markets, such as those that exist for electricity in France and the USA, could also help. Here, suppliers promise future deliveries at fixed prices and receive money in advance.
Since the German economy is closely linked to other European countries and trade policy is largely determined by Brussels, the economists propose the establishment of a European office for security of supply. This should monitor possible delivery problems in international trade relations and make suggestions to politicians on how to respond to them. The coordination of joint strategic reserves of important raw materials could also be part of his tasks.
The Scientific Advisory Board advises the Minister of Economic Affairs independently and on a voluntary basis on questions of economic policy. Its 41 members meet five times a year, consult on topics of their own choosing and publish their results in the form of reports.