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Perhaps no country risks losing more from the winds of
protectionism and tariffs sweeping the world than Germany. The
world's fourth-largest economy and the richest in the European
Union is heavily dependent on exports, especially of industrial
goods that are sensitive to swings in the economic cycle.
The German economy and fabled Mittelstand -- its small and
medium-sized businesses -- depend on thousands of factories,
millions of jobs, and a network of shipping lines, ports and
logistics firms that need exports for their survival.
The country also faces failing fortunes in its titanic car
sector, an aging population, a weaker eurozone economy, and a
migrant crisis that still has not been resolved.
To be sure, Germany's efficient export machine is still pumping
out cars, trucks, factory machines, tools, chemicals, and other
industrial products. Unemployment is below 5%, and with a much
smaller population, it rivals the US as the world's second-largest
exporter.
World's top exporters, first 11 months,
2018
China: $2.3 billion (+11%)
US: $1.53 billion (+8.5%)
Germany: $1.45 billion (+9.2%)
Japan: $675.6 million (+6.7%)
Netherlands: $666.6 million (+12%)
Germany's export economy performed well for most of 2018, even
in the US, thanks to longstanding orders, and strong exports of
electronics, chemicals and car parts.
Top destinations, German exports, first 11 months,
2018
US: $125.7 billion (+8%)
France: $115.4 billion (+5%)
China: $102.5 billion (+15%)
Netherlands: $93 billion (+13%)
UK: $90.4 billion (+2%)
Italy: $77.1 billion (+14%)
Austria: $70 billion (+8.5%)
Poland: $69.5 billion (+13%)
Switzerland: $59.3 billion (+6.1%)
Belgium: $48.7 billion (+6.5%)
So why did German economic growth fall to around zero in the
last few months of 2018?
The answer is trade and fears about what's to come. The
percentage of gross domestic product generated by exports is now
almost 50%, up from around 20% in the early 1990s.
Increasingly, the economic cold that's infected the rest of the
world is reaching Germany. US tariffs and the threat of more
duties, threaten to shrink demand for German industrial goods,
denting business confidence. Economic growth is leveling off in
China. And Germany's third pillar of demand, Europe, has been
sputtering.
Instead of looking at export figures, a better measure of
Germany's fortunes is its trade deficit. After increasing steadily
in the first 10 years of the century, Germany's trade surplus
stopped growing this decade and could even be headed for
retrenchment.
German trade surplus, first 11 months,
2010-2018
2018: $259 billion
2017: $263.2 billion
2016: $259.6 billion
2015: $254.9 billion
2014: $264.1 billion
2013: $244.7 billion
2012: $226.2 billion
2011: $202.8 billion
2010: $187.8 billion
A good case study for Germany's trade fortunes is its mighty car
industry, which has been marred by the diesel emissions scandal at
Volkswagen, the switch to electric cars and trade tensions with the
US.
The Trump administration has threatened to impose further 25%
tariffs on car imports. Chancellor Angela Merkel, who's been in
power since 2005, decried that the US now considers German and
European cars to be a "threat to the national security". The EU has
threatened to retaliate with new duties on billions of dollars of
US goods if Washington imposes auto tariffs.
Already, as Merkel pointed out, Germany's car companies do much
of their manufacturing in the world's top two markets, China and
the US. When it comes to exports, Germany may find itself turning
more toward European neighbors.
German car, truck, parts exports, units,
2018
Poland: 6.4 million (+1.5%)
US: 5.9 million (-2.5%)
China: 4.2 million (+3.7%)
UK: 3.2 million (-15%)
France: 2.9 million (-3%)
Czech Republic: 1.8 million (-21%)
Italy: 1.3 million (-24%)
Spain: 1.3 million (-26%)
Turkey: 1.2 million (-53%)
Netherlands: 1.1 million (-15%)
In the end, German businesses will need China to keep ordering
and importing industrial goods. The best growth markets last year
were automotive, electronics and organic chemicals.
Top German exports to China, first 11 months,
2018
Cars, trucks & parts: $27.7 billion (+20.5%)
Electric machinery & parts: $22.6 billion (+15.5%)
Over 5,000 German firms do business in China, which is still
hungry for German innovation and investment, and Beijing is
expected to provide much-needed stimulus this year. Clearly, it's
still a land of opportunity.
But if Chinese demand fails, Germany will now have to figure out
if it can transition to an economy that's less dependent on
exports. In the fourth quarter, an increase of 1.6% in German state
spending helped to avoid a recession, according to government
data.
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
What topic would you like the Trade Numerologist to cover? Email tradenumerologist@gmail.com with comments and questions.
