Mechanical engineering: Global egoism is devastating for Germany’s most powerful industry

DGermany’s machine builders are losing massive market shares due to trade barriers. This is shown in a current study by the Global Trade Alert Team at the University of St. Gallen on behalf of the Association of German Mechanical and Plant Engineering (VDMA), which WELT has received. “Global protectionism is growing steadily – and German mechanical engineering is suffering,” says Ulrich Ackermann, Head of Foreign Trade at VDMA.

Because with an export quota of almost 80 percent, the medium-sized sector is more dependent on free markets than many other branches of industry. But they are becoming increasingly rare. “Protectionism is on the advance internationally,” describes Simon Evenett, head of the Global Trade Alert team and director of the Swiss Institute for Foreign Trade and Applied Economic Research.

But it is not only classic protectionism instruments such as tariffs, import licenses, joint venture compulsory, localization obligations or technical regulations with which many countries seal off their markets and thus restrict global trade and thus distort competition. “Export subsidies are also very widespread internationally,” says Evenett.

Corona exacerbates the situation

The list of aid ranges from tax incentives to unbound export financing. And that gives the competitors from these countries an enormous cost advantage in some cases, by which they can undercut German competitors or force them to accept lower profit margins or to lose contracts and market shares.

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Economic dependency

According to the study, Germany’s mechanical engineering companies, who have so far been one of the biggest winners of globalization, are affected by this development in all important export markets, for example in China, the USA, Russia, but also in the EU countries. “In some cases between 70 and 100 percent of German machine exports in these countries are in competition with subsidized products,” says the study, which was initiated before the outbreak of the Corona crisis and therefore does not contain any pandemic reactions, but an inventory for the beginning of 2020 shows.

Whereby the situation has worsened again due to Corona, both in terms of export promotion and the classic protectionism hurdles: “Since the beginning of the year, we have registered 35 further measures and tightened rules,” says free trade researcher Evenett. Emerging countries in particular are building up ever greater hurdles that make it difficult to sell machines there. “These countries want to develop their own industries.” According to the study, over 97 percent of German mechanical engineering exports to Brazil, Canada, China, South Africa and the USA are already subject to regulatory changes, and another ten emerging countries and Japan have introduced technical trade barriers.

China is sitting behind German mechanical engineers

Germany is still the world’s leading exporter of machines and systems. “But it is only a matter of time before there is a change at the top,” predicts association representative Ackermann. Above all, China is sitting on the German providers’ necks. On the one hand, the quality of the machines from the People’s Republic has improved significantly in recent years. On the other hand, Chinese companies benefit from sometimes massive export aid. And not just in mechanical engineering. Scientist Evenett refers to current statistics, according to which Chinese exports have increased around 35 percent more than exports to the European Union in the past five years.

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This has had massive effects in mechanical engineering for a long time. Take Russia, for example: ten years ago, the German providers there were market leaders with a share of almost 25 percent, as reported by the VDMA. Today, however, according to the association, the market share is only around 15 percent. Instead, the new front runner is China with over 20 percent of the business there.

“It is true that many companies that are being displaced in some places still find new markets for their products,” says VDMA foreign trade expert Ackermann. “But that is becoming increasingly difficult, especially since the sales regions are becoming more fragmented and the competition is tougher.” The previous successful export model is acutely at risk for the 230 billion euro industry due to increasing protectionism worldwide, reports the VDMA. Corona also works here as a fire accelerator.

WTO fails as an arbitration body

And there are practically no more arbitrating bodies, complain the machine builders, who employ a million people and are among the largest industrial employers in Germany. According to Ackermann, both the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO) have been completely out of action as institutions and regulators for years.

“The WTO has been discussing for 20 years and practically nothing is happening. We therefore need many more free trade agreements as a second-best solution. ”Because a free world needs free trade. “Only this basic formula makes sense in international cooperation.” The machine-builders’ wish list includes agreements with Mercosur and Mexico, but also with Australia and New Zealand or with Indonesia, Thailand and the Philippines and not least with Great Britain.

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The VDMA therefore considers tightening protective measures in Germany to be just as wrong as export aid based on the Chinese model. “Simply taking over obstacles and copying them is no solution for us. Because we cannot demand free markets and at the same time stand up for Germany’s isolation ”, says Ackermann, who is brave:“ We take up the fight. ”Instead, the association demands that German and European politics actively maintain contact with countries with high import tariffs and other trade policy countermeasures and advocates solutions.

Source: WORLD infographic

The export problems hit the mechanical engineering sector in an already extremely tense situation. From January 2019 to June 2020, incoming orders declined in 17 out of 18 months compared to the respective month of the previous year, most recently again very significantly with minus values ​​of around 30 percent in April, May and June. The decline in orders from abroad is significantly greater than the minus from Germany. “This decline is due to a weakened global economy due to trade disputes and political upheavals, which was also hit hard by the Covid-19 pandemic,” explains VDMA economic expert Olaf Wortmann. How many orders are lost due to protectionism and trade barriers cannot be quantified, according to the association. “Unfortunately, none of the clients tell us that. Otherwise we would have the necessary argumentation aid vis-à-vis politics, ”says Ulrich Ackermann.

Now the corona crisis is also catching the German mechanical engineers

The corona crisis is now overwhelming the next industry: German machine manufacturers are reporting massive losses in sales. And the most violent strikes of the coronavirus crisis are still to come, fears not only the industry association VDMA.

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