The German economy is facing growing trade barriers – Image: Xpert.Digital
Global borders, local consequences: The growing challenge for the German economy
Trade barriers and the German economy: How global interconnectedness becomes a dilemma
Cross-border trade barriers are playing an increasingly critical role for the German economy, particularly given its strong export orientation and global interconnectedness. The effects are multifaceted and impact various aspects of German economic performance:
Increasing trade barriers
The German economy is facing growing trade barriers:
- In 2022, 61% of German companies active abroad reported an increase in trade barriers in their international business – a record high.
- Particularly local certification and increased security requirements 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:
- Estimates suggest that German exports in 2015 could have been around 43 billion US dollars (1.2% of GDP) higher had it not been for the non-tariff trade barriers newly introduced between 2010 and 2015.
- A transatlantic trade war could mean a loss of up to 180 billion euros for the German economy over a four-year term of Trump.
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 losses in value added would be in the automotive industry (-8.47%, -8,306 million USD), transport equipment (-5.14%, -1,529 million USD) and in mechanical engineering (-4.34%, -5,201 million USD).
- The pharmaceutical and chemical industries would also suffer significant losses if they were to decouple from China.
Strategic adjustments
Increasing trade barriers are forcing German companies to make strategic adjustments:
- This creates 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 gaining importance, with comprehensive deglobalization having the most negative impact on the German economy.
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Importance of free trade agreements
In light of these challenges, free trade agreements are gaining in importance:
- The recently concluded EU-Mercosur agreement could provide positive impetus for the internationally networked German economy.
- Such agreements aim to eliminate trade barriers and thus facilitate the exchange of goods between states.
Cross-border trade barriers pose a serious threat to Germany's export-oriented economic model. They jeopardize not only economic growth, but also jobs and the international competitiveness of German companies. The ability to respond to these challenges and develop new trade routes will be crucial for Germany's future economic development.
The EU-Mercosur agreement
The EU-Mercosur agreement, negotiations for which concluded on 6 December 2024, represents a significant milestone in trade relations between the European Union and the Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay). This groundbreaking free trade agreement creates a common market with over 700 million inhabitants and offers substantial economic opportunities for both sides.
Key points of the agreement
- Tariff reduction: Approximately 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 food products are protected in Mercosur.
- Sustainability aspects: Binding regulations on labor, environment and climate, including the obligation to implement the Paris Climate Agreement.
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Importance for the German economy
The agreement offers significant advantages to the German economy:
- Export opportunities: Approximately 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, particularly in sectors such as mechanical engineering, automotive engineering and chemicals.
- Diversification: Opportunity to reduce dependence on other global trading powers, especially China.
Challenges and criticism
Despite the economic advantages, there are also critical voices:
- Agriculture: Concerns regarding increased competitive pressure on European farmers.
- Environmental protection: Concerns about potential negative impacts on deforestation and climate protection.
The agreement has not yet been ratified and is not expected before the second half of 2025. The German Federal Government and business associations are urging swift implementation in order to seize 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 both opportunities for growth and innovation as well as challenges in terms of sustainability and competition.
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