Deglobalisation Essay Series 5

October 2022

Trajectory of Deglobalizing Forces:
How Resilient Is Germany?
By Axel Berger
It is now a truism that we are living in turbulent times characterized by multiple
overlapping crises that are transboundary in nature. Almost 15 years ago, a seemingly
confined crisis on the United States‘ housing market brought the global financial crisis tothe brink of collapse, leading to the most severe economic crisis since the Great
Depression of the 1930s (Tooze, 2018). The Global Financial Crisis of 2007 and 2008—
as well as the Euro Crisis of 2009 and 2020—underlined the fragility of largely
deregulated and highly interconnected financial markets. The economic and social
repercussions of the financial crises contributed not only to the United Kingdom’s
withdrawal from the European Union but also to the election of Donald Trump aspresident of the United States in 2016. Both events are two important watershed
moments in discussions about deglobalization due to the intentional restrictions on
economic transactions and the weakening of international institutions, such as theEuropean Union or the World Trade Organization (WTO) underpinning economic
globalization.Konrad-Adenauer-Stiftung e. V.
Trajectory of Deglobalizing Forces: How Resilient Is Germany?

October 2022

Deglobalization may have not only been caused by deliberate protectionism but also by
broader social trends such as global health crises or even large-scale wars. The COVID19 pandemic led to a sharp downturn of economic activity, both due to demand-side as
well as supply-side factors that where caused by lockdowns and global value-chain
disruptions. As a result of the Chinese government’s strict zero-COVID policy, theChinese economy is not only growing at a slower pace, compared to other Asian
countries, for example (World Bank, 2022), it is also at least partly decoupling from theworld economy. The pandemic has also revealed the deep geopolitical ruptures between
the large powers, in particular the United States and China (Kahl & Wright, 2021).
The latest shock to the current model of international integration has been caused by theRussian war of aggression against Ukraine. In response to the war, the G7 and a numberof friendly states have launched multiple packages of comprehensive economic andfinancial sanctions against Russia. The differences of opinion on how to react to Russia’s
war has the potential to disrupt international cooperation forums. The G20, for example,
has been split between Russia and China on the one hand and the G7 countries (plus
Australia and Korea) on the other hand. Moreover, a number of nonaligned countries try
to manoeuvre between these two poles, treating the Russian war as a regional conflictthat should not affect broader international relations.
Due to their accumulation and sereneness, these crises call into question the model ofglobal economic integration that emerged after the end of the Cold War in the 1990s.
This model of unprecedented integration of trading systems and financial markets,
supported by even thicker intergovernmental and transnational institutions, has led tohigh growth rates in a few mainly export-oriented economies (Baldwin, 2016). Countries
like China and also Germany have benefitted from this era of economic globalization,
often at the expense of the poorer parts of their societies as well as their trading partners,
however (Klein & Pettis, 2020).
This era of “hyper-globalization” (Rodrik, 2011) seems to have ended. Rather thanreferring to offshoring, supply-chain efficiency, or just-in-time delivery, current discourses
about global economic relations are characterized by the terms near- and friend-shoring,resilience of supply chains, or strategic autonomy. These conceptual changes do notmark the end of globalization but certainly point to a new geoeconomic environment thatis characterized by less transboundary commerce.
Germany is directly affected by these trends. As a “middle power,” it lacks the sheermarket or political power of larger economies such as the United States and China. Still,
due to its geographic position and economic dynamism, Germany’s preferences anddecisions matter for its neighboring countries and the European Unions as a whole.
Rarely has this been clearer than during the Euro Crisis and the discussion about
appropriate measures against soaring debt levels in South European countries. At thesame time, only through the European Union can Germany assert economic and politicalinfluence on a global stage.
In the following, I would like to focus on the Russian war against Ukraine and thestrategic competition with China as the two key drivers for current discussions on
international economic policy-making in Germany.
Three days after the start of the Russian invasion of Ukraine, Chancellor Olaf Scholz
announced a Zeitenwende (“a turning point”) for German policy-making in an
extraordinary session of the German parliament. Current discussions in Germany revolvearound questions of international security or defense spending but also have strong
implications for Germany’s economic policy-making at home and abroad. Economic
relations with Russia after the fall of the Iron Curtain and Germany’s reunification were
not only driven by purely economic considerations but also by the desire to change
Russia politically and socially by increasing economic interdependences. The concept ofWandel durch Annäherung (“change through rapprochement”) already guided German
policy-making during the Cold War. Its influence remained effective after the collapse of

Konrad-Adenauer-Stiftung e. V.
Trajectory of Deglobalizing Forces: How Resilient Is Germany?

October 2022

the Soviet Union. Nowhere is this more evident than in the area of energy relations,where Germany is heavily dependent on Russian exports of oil and natural gas. Asymbolic project to further this energy cooperation was the construction of the Nord
Stream 2 pipeline through the Baltic Sea. In hindsight, of course, the interdependence inthe energy sector was not balanced and could easily be used by Russia to exert politicalpressure on Germany in times of war.
Since the start of the war in Ukraine, the economic cooperation between Germany andRussia is being unraveled. As the chair of the G7 in 2022, Germany helped tocoordinate economic and financial sanctions against Russia. Moreover, Germany tries todiversify its supplies of oil and, in particular, natural gas by negotiating new gas supply
contracts with countries such as Qatar, Canada, or Senegal. Perhaps the most important
impact will be felt over the medium term in the area of renewable-energy production.
Previously, the expansion of renewable-energy capacities, such as in wind power, solar
photovoltaic cells, or green hydrogen, has been sought as a means to decarbonize
energy production to meet climate-change-mitigation targets. Nowadays, renewableenergy production is also discussed as a contribution to enhance Germany’s energy
security. The effects the energy shock due to the war in Ukraine has on Europe’s
renewable-energy production can be seen, for example, in the substantial increase ofimports of solar PV panels from China.
In addition to energy, Germany and Russia are decoupling also in other sectors such asmetals, manufacturing, or agriculture. This decoupling is a result not only of the strict
sanctioning regime against Russia in which Germany participates but also of thevoluntary retreat of German companies from the Russian market. It seems unlikely that
this process of decoupling of the German and the Russian economy will be reversed any
time soon, and it invites a discussion about a potential scaling back of interdependencies
at a much larger scale with China.
While German economic policy-making is currently mainly concerned with mitigating therepercussions of the war in Ukraine, the readjustment of economic relations with China
should not fall by the wayside. Traditionally, economic relations with China were alsoinfluenced by the conception of Wandel durch Annäherung. Germany supported China’saccession to the World Trade Organization (WTO) in 2001 and promoted closer tradeand investment cooperation with China. However, hopes that China would change
towards larger economic and even political liberalization haven proven to beexaggerated. On the contrary, since the seizure of power by Xi Jinping in 2012, theinfluence of the state in the economy has been growing, while China has increased tradeand investment barriers in a number of strategic sectors. These developments have led
to a rethinking of relations with China among policy and business elites in Germany. The
Federation of Germany Industries, for example, described China as a systemiccompetitor in a seminal position paper published in 2019 (BDI, 2019). Furthermore, in
response to a growing number of Chinese investments in German companies, theGerman government introduced an investment-screening mechanism to check andpotentially block mergers and acquisitions that run counter to national-security interests.
However, the recent experiences of supply-chain disruptions during the COVID-19
pandemic and the increasing appreciation of vulnerabilities faced by Germany in key
sectors such as battery production or natural resources (in particular, rare-earth metals)
underline that more needs to done to increase resilience. Given Germany’s export
dependency and China’s sheer size, a decoupling will not be feasible. However, theGerman government, together with the business sector and other societal stakeholders,should enter into a strategic reconsideration of its relationship with China. Such a
discussion was about to start under the new traffic-light-coalition government. In thecoalition agreement, China was described as a systemic rival while German andEuropean values where emphasized. However, the development of a new China strategy
has been interrupted by the Russian war against Ukraine.

Konrad-Adenauer-Stiftung e. V.
Trajectory of Deglobalizing Forces: How Resilient Is Germany?

October 2022

The developments during the past two years, including the COVID-19 pandemic andRussia’s war against Ukraine, have contributed to the realization in Germany that thedays of hyperglobalization are over and that we have entered a new geoeconomic era.
Germany, alongside its partners in the European Union, will still be a key promoter ofinternational economic cooperation and a rules-based order. However, the traditional
liberal foreign economic policy-making of Germany will increasingly be pursued in acontext of geopolitical rivalries, new security threats, and the need to decarbonizeeconomies. The realignment of these priorities calls for the development of a new
strategic compass for Germany in the world economy.

Konrad-Adenauer-Stiftung e. V.
Trajectory of Deglobalizing Forces: How Resilient Is Germany?

October 2022

References
Baldwin, R. (2016). The great convergence: Information technology and the new
globalization. Harvard University Press.
Bundesverband der Deutschen Industrie (Federation of German Industries). (2019,January): Partner and systemic competitor – How do we deal with China’s statecontrolled economy? (Policy paper: China). Retrieved September 19, 2022, fromhttps://english.bdi.eu/publication/news/china-partner-and-systemic-competitor/
Kahl, C. & Wright, T. (2021). Aftershocks: Pandemic politics and the end of the oldinternational order. St. Martin’s Press.
Klein, M. C. & Michael Pettis (2020). Trade wars are class wars: How rising inequality
distorts the global economy and threatens international peace. Yale UniversityPress.
Rodrik, D. (2011). The globalization paradox: Democracy and the future of the world
economy. W.W. Norton.
Tooze, A. (2018). Crashed: How a decade of financial crises changed the world.
Penguin.
World Bank. (2022, October): Reforms for recovery (World Bank East Asia and thePacific economic update. Retrieved October 19, 2022, fromhttps://documents1.worldbank.org/curated/en/099645009262221948/pdf/P17965
7034950a06c08cbf06f57e0e52bde.pdf

Konrad-Adenauer-Stiftung e. V.
Regional Economic Programme Asia (SOPAS)
Coordination: Cristita Marie Perez, Senior Programme Manager
Sakuya Iwakawa, Programme Management Assistant
25 October, 2022

The text / The text and the pictures / All articles in this publication are subject toCreative Commons License CC BY-SA 4.0 international (Attribution – ShareAlike)"Nord Stream 2 Rügen 181007 369.jpg" by juergen.mangelsdorf is licensed under
CC BY-NC-ND 2.0. To view a copy of this license, visit
https://creativecommons.org/licenses/by-nd-nc/2.0/jp/?ref=openverse.

kas-japan.or.jp