The Business Foundation of German Industry (I)

Oct. 18, 2021

German Think Tank outlines scenarios for possible developments in the geostrategic competition between the USA and China and their respective impact on the German economy.

BERLIN/GÜTERSLOH (Own report) – Germany’s influential Bertelsmann Foundation has published a comprehensive analysis of the impact the geostrategic competition between the USA and China has on Germany’s economy. German companies are essentially dependent on profitable business relations with both countries to avoid jeopardizing their position in the global economy. At the same time, German businessmen fear that they may have to choose sides due to the escalating rivalry between Washington and Beijing. The Bertelsmann Foundation outlines five scenarios for the development of this conflict and presents possible responses from the side of German businesses. The analysis has been elaborated over a longer period of time in cooperation with the Federation of German Industries (BDI), drawing on assessments and strategic considerations of various segments of the German economy. The authors conclude that more cooperative scenarios of the US-Chinese conflict do not “currently seem to align with the internal logic of the systems involved.” German companies could be forced to take drastic steps.

Workshops with the Business Community

The Bertelsmann Foundation partnered with the Federation of German Industries (BDI) to elaborate an analysis of the US-Chinese geostrategic competition’s impact on the German economy. It is based on a series of workshops, whose intense discussions focused on “various possible future developments and their impact on the German business community,” the Foundation reports. In cooperation with the Fraunhofer Institute for Systems and Innovation Research (ISI) in Karlsruhe and representatives “from business and politics,” the Foundation has devised five scenarios regarding the possible development of the world in the years to come, in light of the rivalry between China and the USA: The timeframe focused on the year 2030. The five scenarios were subsequently discussed in around 30 sessions with over 70 representatives “from business organizations, trade associations and political institutions.” The “key question” was to identify the “impact of individual scenarios on German companies,” and to examine potential “responses.” The participants were not named: “All discussion partners agreed on confidentiality,” informs the foundation.[1]

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Analyses and Future Scenarios

The debate obviously incorporated reflections elaborated by very different sectors of the German business community. All companies are “aware that geopolitical shifts are changing the foundation on which they do business,” the Bertelsmann Foundation notes. However, “the way in which companies prepare for this differs.” Some systematically analyze geopolitical and global economic developments, sometimes in the form of detailed future scenarios,” the Foundation writes. At a number of major German companies, such analyses are carried out in a structured fashion by specialized organizational units.” Yet “even small and medium-sized enterprises (SMEs)” are also “intensively” reflecting on the global changes. Particularly “some family-run companies” have “generations of experience dealing with global political developments, such as during the Cold War.”

“Ties Developed over Decades”

The German business community is particularly worried about the fact that, in the escalating rivalry between the United States and China, it is dependent on cooperation with both sides. The United States is still the world’s most affluent market, its economic output in 2019 was at US $18.3 trillion – more than that of the EU (US $16.6 trillion) and China’s (US $11.5 trillion). The United States is, by far, Germany’s number 1 location for foreign investments, which according the German Bundesbank amount to €391 billion; and when one adds the commodity and service trade, it is Germany’s largest trading partner. “Many companies,” according to the Bertelsmann Foundation, “have complex ties to the US that have developed over decades.” Besides, “the country’s legal system also creates a very reliable market for German companies.” In addition, the USA, “through its financial markets and the dominance of the US dollar as a reserve currency, … influences the global economy like no other” player.

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“Much Higher Growth Forecast”

China, on the other hand, affirms the Bertelsmann Foundation, “has developed into a market of similar importance for many German players in recent decades.” According to recent estimates, China’s economic output will surpass that of the USA, even in absolute terms, by 2030,[2] its “growth forecast” will remain higher than in the US in coming years,” predicts the Bertelsmann Foundation. Yet “this sizeable potential” is offset by “a more difficult market environment” in the form of a “lack of legal certainty,” “forced technology transfers,” and “government support for Chinese companies;” however, “experience has shown that German firms in China, despite political and legal difficulties, can do business very profitably.” Already today, a “look at the trade figures excluding services” shows that China is “Germany’s most important non-European trading partner.” In addition, China is already the third-largest location for German foreign investments, behind the USA and Great Britain, with a rapid upward trend (status 2019: €89 billion). China also has significant importance as a research and development location.

Cooperative Scenarios

The Bertelsmann Foundation presents five scenarios on the future development of the competition between the United States and China. Only two of these explore the option of closer cooperation between Washington and Beijing. One (“Reformed Multilateralism”) depicts the USA, the People’s Republic and the EU “in a mild, non-aggressive systemic conflict,” in which “all actors” make an effort “to cooperate and to find solutions on a multilateral level.” Even though there is “fierce competition” to access raw materials, for example, it is nevertheless possible to maintain a certain degree of cooperation: “Reformed Multilateralism” is the preferred scenario from the perspective of the German economy, according to the analysis. Noticeably less favorable, but still acceptable for the German business community is Scenario “G2,” based on a more cooperative relationship between the USA and the People’s Republic paralleled by a loss of the EU’s influence. “The EU makes do following in the wake of both major powers, becoming the world’s undisputed third power, although it is less relevant as an independent political player.” Even though, in this case, companies in the EU must acquiesce to fierce pressure from the USA as well as from China, the Bertelsmann Foundation predicts, there would, however, also be great opportunities for profitable business, particularly on the Chinese market.

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“Not Aligned with the Systems’ Logic”

In view of the two options of development, the Bertelsmann Foundation openly admits: “Although the superpowers … are well aware of the dangers that would accompany an escalation, cooperation in the sense of multilateralism or a G2 scenario does not currently seem to align with the internal logic of the systems involved.” At any rate, the current level of conflict is likely to persist and even possibly intensify. The impact on the German economy would be dramatic. german-foreign-policy.com will soon report.

[1] These quotes and those that follow are from: the Bertelsmann Foundation’s “Globalization Scenarios: Challenges and responses from the perspective of German business” Gütersloh 2021.

[2] The world is moving East, fast. eulerhermes.com 18.01.2021. Calculated on the basis of purchasing power parity, the People’s Republic of China has already overtaken the United States in terms of economic output.

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