Germany should be wary of ‘decoupling’ amid recession risks

Illustration: Chen Xia/Global Times

From October 1, Germany will impose a new gas tax on average households. The move, in response to an energy supply crisis and rising prices, is expected to aggravate inflationary pressure in Europe’s largest economy, push up economic costs and further weigh on the economy facing risks. of recession.

The new gas tax would cost German households nearly 500 euros ($478) a year, according to the tax rate published in August. While the country reported an inflation rate of 7.9% for August, the highest level in five decades, the gas tax will increase the burden on average German families this winter.

German think tank Kiel Institute for the World Economy recently warned that high energy prices will push the German economy into recession. Over the next year, the German economy is expected to contract by 0.7% and the inflation rate is expected to reach 8.7%, the think tank predicted.

However, in the face of thorny economic conditions, German politicians have been ramping up the hype about “reducing dependence on China” lately, and the country’s economy minister, Robert Habeck, has said on September 13 that his ministry was working on a new China-related trade policy.

Recently, growing rhetoric from some German politicians about “economic decoupling” from China has sparked discontent in the business community. Many in the business world have warned that it is not in Germany’s interest to decouple economically from China. They believe that an adequate presence in China, a key growth market, is very important, not only for individual German companies, but also for the entire German economy.

“Government support and protection of German companies’ activities in China must remain, in principle,” Friedolin Strack, managing director of the Asia-Pacific Committee of German Companies (APA), said recently, according to German media Deutsche Welle.

Germany has been one of the biggest beneficiaries of China’s reform and opening up over the past four decades. From large manufacturing companies to small and medium enterprises, a considerable number of German companies have obtained rich returns from the Chinese market.

In 2021, the trade volume between China and Germany reached $235 billion, according to data from China Customs, and China has remained Germany’s biggest trading partner for six consecutive years. Although the COVID-19 epidemic has repeatedly disrupted market stability and had some impact on Sino-German trade, more than half of German companies are still optimistic about their prospects in the Chinese market.

Frequent calls for “decoupling from China” and transferring the industrial chain from China are obviously detrimental to the German economy and businesses, especially when the German economy faces the risk of recession. This will only aggravate the serious inflation and employment situation in Germany and worsen its current economic situation.

According to a research report published in August by the Munich-based research group ifo, an economic “decoupling” of the EU and Germany from China would cost the German economy almost six times as much as the exit from EU Britain, or Brexit.

It is hoped that German economic policymakers will be wary of rhetoric to “reduce dependence on China”.

One of the simplest principles of the market economy is the following: where the market is stable, purchasing power is strong and production is efficient, companies must increase their inputs there. German policymakers should listen to market players when developing policy towards the Chinese market, instead of following political bias.

The author is a journalist at the Global Times. [email protected]

James R. Rhodes