The German economy is confronted with growing trade barriers

Trade barriers & the German economy: How global networking becomes a dilemma

Cross-border trade barriers are playing an increasingly critical role for the German economy, especially given its strong export orientation and global connectivity. The effects are complex and affect various aspects of German economic performance:

Increasing trade barriers

The German economy is confronted with growing trade barriers:

•  61% of German companies active abroad reported an increase in trade barriers in their international business in 2022 - a record high.
• Local certification and increased security requirements in particular lead to additional bureaucracy and friction in cross-border trade.

Impact on exports and GDP

The consequences of these barriers for the German economy are significant:

• According to estimates, German exports could have been around $43 billion (1.2% of GDP) higher in 2015 had it not been for the non-tariff trade barriers introduced between 2010 and 2015.
• A transatlantic trade war could mean a loss of up to 180 billion euros for the German economy over Trump's four-year term in office.

Sectoral impacts

Certain industries are particularly vulnerable to trade barriers:

• In the event of a trade war between the EU and China, the largest relative and absolute value added losses would be in the automotive industry (-8.47%, -$8,306 million), transport equipment (-5.14%, -$1,529 million) and mechanical engineering (- 4.34%, -5,201 million USD).
• The pharmaceutical and chemical industries would also suffer significant losses if they decoupled from China.

Strategic adjustments

Increasing trade barriers are forcing German companies to make strategic adjustments:

• There are incentives to increasingly serve export markets through local production, which could weaken the production base in Germany in the medium term.
• Discussions about reshoring, nearshoring and friendshoring are becoming increasingly important, with comprehensive deglobalization having the most negative impact on the German economy.

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Importance of free trade agreements

Given these challenges, free trade agreements are becoming increasingly important:

• The recently concluded EU-Mercosur agreement could bring positive impulses for the internationally networked German economy.
• Such agreements aim to remove trade hurdles and thereby facilitate the exchange of goods between states.

Cross-border trade barriers pose a serious threat to the export-oriented German economic model. They not only endanger economic growth, but also jobs and the international competitiveness of German companies. The ability to respond to these challenges and open up new trade routes will be crucial for Germany's future economic development.

The EU-Mercosur agreement

The EU-Mercosur Agreement, whose negotiations concluded on December 6, 2024, represents a significant milestone in the trade relations between the European Union and the Mercosur states (Argentina, Brazil, Paraguay and Uruguay). This landmark free trade agreement creates a common Market with over 700 million inhabitants and offers significant economic opportunities for both sides.

Key points of the agreement

• Tariff reduction: Around 91% of tariffs between the EU and Mercosur will be eliminated, resulting in annual savings of around 4 billion euros for European companies.
• Market opening: Easier access to public tenders and improved conditions for services in areas such as IT, telecommunications and transport.
• Protection of geographical indications: 357 European foods are protected in Mercosur.
• Sustainability aspects: Binding regulations on work, the environment and climate, including the obligation to implement the Paris Climate Agreement.

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Importance for the German economy

The agreement offers the German economy significant advantages:

• Export opportunities: Around 12,500 German companies, 72% of which are SMEs, export to Mercosur.
• Jobs: German Mercosur exports secure 244,000 jobs in Germany.
• Competitiveness: Reduction of trade barriers, especially in sectors such as mechanical engineering, automobile manufacturing and chemicals.
• Diversification: Opportunity to reduce dependence on other global trading powers, particularly China.

Challenges and criticism

Despite the economic advantages, there are also critical voices:

• Agriculture: Concerns about increased competitive pressure on European farmers.
• Environmental protection: Concerns about possible negative impacts on deforestation and climate protection.

Ratification of the agreement is still pending and is not expected until the second half of 2025 at the earliest. The German federal government and business associations are pushing for rapid implementation in order to take advantage of the economic opportunities and send a signal against protectionism.

Overall, the EU-Mercosur agreement is seen as an important step towards strengthening economic relations between Europe and South America, offering opportunities for growth and innovation as well as challenges in terms of sustainability and competition.

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