Goal: To Implement Existing Recommendations Consistently
The systemic competition between the United States and China determines what is economically possible. Germany’s export-oriented economy is closely intertwined with the economies of both superpowers. It will clearly feel the consequences of a separation of the spheres of technology and trade. The German National Security Strategy, the German Strategy on China, and the European Economic Security Strategy have identified economic risks for Germany and the EU that are highly interdependent with other economies in a geopolitically tense world. The resulting recommendations must now be consistently implemented, taking geopolitical considerations into account.
Economic security is a new dimension of state sovereignty that can strengthen Germany’s relationship with international partners, modernize German foreign economic policy, and make the country more responsive. The new German government should therefore take a leading role in the EU when it comes to export controls and strive for closer exchange with the United States. In addition, it should help accelerate the debate on outbound investment screening in the EU without pressing for a specific outcome. It should create a new instrument through which it can enforce the reduction of the German economy’s dependence on individual export markets where necessary. The new German government should also significantly strengthen coordination and understanding between the state and the private sector.
Current Situation: Economic Relations as a Geopolitical Instrument
Germany’s most important trading partners – besides the EU – are the United States and China. This makes the country particularly vulnerable to the consequences of the growing rivalry between the two superpowers and the tensions of the new geoeconomic environment.
The United States sees China as its greatest security threat and is trying to limit its technological development to extend its own lead. China, on the other hand, is greatly expanding its own technological value creation and is tying foreign customers or companies more closely to the Chinese market to secure its geopolitical position. As a result, the world is increasingly being divided into economic and regulatory spheres, most recently by the rules on the diffusion of artificial intelligence (AI) established by the administration of former US President Joe Biden.
With Donald Trump in the White House, Germany must expect growing pressure to support Washington’s China policy. This could have a direct impact on German companies in sectors such as the optics industry whose special components are particularly important for the machines used to manufacture semiconductors. The presidential memorandum on an America First Trade Policy, for example, calls on the US Secretary of State and Secretary of Commerce to examine the effectiveness of US export controls and make recommendations for their improvement. It also calls for incentive and enforcement measures to encourage other countries to implement US export controls, including trade and national security measures.
At the same time, China can be expected to offer incentives and exert pressure on Germany and Europe not to support the US approach.
There is a great risk of Germany and the EU being caught unprepared between the two sides. The United States and China – taken together, Germany’s main trading partners after the EU – are each much less dependent on exports. In 2023, Germany’s exports represented more than 40 percent of its GDP, giving Germany one of the highest export shares in the world and the highest in the G7. A revival of German growth can only work if the current geopolitical realities resulting from the interconnection with these two markets are taken into account. A path must be found between US policy, which aims to decouple from China in strategic sectors, and an overly trusting turn to the Chinese market, whose future development German companies are already seeing more critically.
In the coming years, the new federal government of Germany should take much more concrete measures on the EU level and the national level to maintain or even expand its own claim to sovereignty.
Next Steps: Be Brave in Three Areas
1. Take a Leading Role in Europe and Be Open to New Initiatives
Germany can see economic security as an opportunity to position itself as more oriented toward the future and prove itself as a partner willing to cooperate within the EU and with the United States and others. In the short term, it can take a leading role in establishing export controls for future technologies and outbound investment screening in Europe.
In principle, Germany is already well positioned when it comes to export controls for dual-use goods. However, following the recent amendment of its national dual-use list, it should take a more active role in assuming a leading role in Europe. To this end, it would be important for the German government to push for even more intense coordination of national lists, up to a joint control list for future technologies. It should also continue to consider the possibility of developing controls in multilateral fora and incorporating these into the EU Dual-Use Regulation via national lists. At the same time, the German government should press for the evaluation of this regulation this year.
Outbound investment screening is another measure that is already being discussed in the EU. The 18-month national monitoring process that is part of the EU’s recommendation to review investments in third countries has recently begun. The German government should provide sufficient capacity for this and promote an expansion of the analysis of investment and supply chain data. The possibility of using adapted foreign direct investment data from the Bundesbank should also be considered.
A further step toward strengthening national sovereignty should be the introduction of an instrument for reviewing dependencies on foreign markets in strategic sectors. Cluster risks have already been identified as a potential danger in the German Strategy on China. However, such an instrument must be country-agnostic and primarily serve as a basis for analysis and negotiation; only in severe cases should measures be taken to reduce dependencies through strong incentives.
In the medium term, both the EU and the United States, as well as other partners, are interested in common economic security standards. The German government must thoroughly prepare for such discussions and help shape the debate at the EU level. In the transatlantic relationship, as I argued in a DGAP Memo published in German, it should be open to efforts to coordinate export controls more closely and propose its own initiatives, also in consultation with partners such as Japan. Without abandoning existing multilateral formats, this will strengthen Germany’s position and help to better assess future developments, including the consequences for German companies.
2. Think Strategically in New Structures
Germany must significantly strengthen its strategic geoeconomic thinking and reflect this in its structures. Economic security is a cross-cuttingconcept not a technical issue, which is why it should be elevated to a staff topic at the departmental level. In addition, the German government should create an interdepartmental economic security committee at the federal level that should be coordinated by the Federal Chancellery, possibly as part of a new national security council. This committee would also be the right place to use the aforementioned instrument for reviewing dependencies on foreign markets.
3. Strengthen Ties Between Politics and Business in Germany
The modernization of Germany’s foreign economic policy must be based on a common understanding between politics and business of the risks and opportunities of economic relations in a geopolitically volatile world. To this end, a new German government should convene a regular exchange with business associations and individual companies from strategic sectors at the managerial level. The meetings should take place every six months with representatives of the federal government in tap-proof rooms, under the coordination of the Federal Chancellery, and with a focus on assessment of the political situation and information exchange.
A detailed version of the recommendations for Germany’s next federal government will be published by the author after the February 23 elections.
