Transatlantic Perspectives (I)

BERLIN/WASHINGTON | | usa

BERLIN/WASHINGTON (Own report) - Germany is continuing to strengthen its close ties to the United States despite the US President's recent racist campaign. German companies have announced billions in investments in the country, for example the German Telekom, which plans to invest more than five billion euros in its T-Mobile USA subsidiary. The United States is, by far, the biggest investment site for German companies. Dax enterprises, alone, generate 22 percent of their total revenue in the USA - more than on their home market (21 percent). Various German enterprises are dependent on close cooperation with the US high-tech industry, so as not to hopelessly lag behind in artificial intelligence (AI) and autonomous driving. Cooperation with China - increasingly practiced - is the only alternative. Notwithstanding their profitable cooperation with the USA, the escalating US economic wars and their attacks on German business partners are driving the German industry toward confrontation.

 

Business Partner No. 1

From an economic point of view, close cooperation with the United States is without alternative for the German elite. The USA is the most important customer of German exports - with a widening gap to France. Last year, German companies sold more than €113 billion worth of products to the United States - 8.6 percent of the total German exports. However, since Germany continues to import much fewer goods from the US, it has amassed a surplus of nearly €49 billion from US trade in 2018 - more than from the trade with any other country. Above all, however, the United States is the most important site for German foreign investments - with a lead that seems unassailable in the foreseeable future. According to the Deutsche Bundesbank, the total portfolio of indirect and direct German investments in the USA had attained more than US $335 billion in 2017 - around 28 percent of all German foreign investments. In 2017, Great Britain was the second largest site for German foreign investments with around €145 billion - however, with a downward trend due to Brexit. As of 2017, the People's Republic of China was third with €81 billion - with a sustained rapid growth.[1]

Larger than the Home Market

Also because of the massive German investments, the United States has not only become the largest export market for globally operating German companies, but also the most important market altogether. Dax enterprises, which often supply the US market directly through their US subsidiaries, generate an average of 22 percent of their total revenue in the United States - in Germany only 21 percent. With business in Germany accounting for only 29 percent, the Bonn-based Deutsche Telekom generates 48 percent of its revenue in the USA, through its subsidiary T-Mobile USA, the third largest mobile communication provider in that country, which recently reached sales of more than €36.3 billion - with a total turnover of €75.7 billion. Revenue shares of SAP are at 32 percent in the USA and 15 percent in Germany, those of Continental at 25 (USA) and 20 (Ger.), Bayer 24, vs. 10 and Linde 23 vs. 7 percent respectively.[2]

Billions in Investments

At the same time, German companies are expanding their US investments, on the one hand, because of the economic and population growth in the United States, clearly surpassing comparative values in Germany and promising lucrative business. On the other, German companies also profit from the Trump administration's tax reform, which includes a massive reduction of the corporate tax from 35 to 21 percent. Daimler and BMW, for example, thus have each saved around €1 billion. In view of lucrative business conditions, Deutsche Telekom plans to invest US $5.7 billion in T-Mobile USA and RWE several billion to expand its US renewable energies business. Covestro, a special chemicals producing company, which separated from Bayer in 2015, will make its largest investment ever with the construction of a factory worth around €1.5 billion in Texas. The German automotive industry is also planning billions in investments.[3]

Germany's Dependence on High-Tech

The fact that German state-of-the-art technologies companies are heavily dependent, not least of all, on the United States is a serious factor. Two weeks ago, Germany's Minister of the Economy, Peter Altmaier, toured the USA - also with the objective of strengthening contacts to US high-tech companies. Germany will "no longer be able to catch up" with "Silicon Valley" predicted correspondents thereafter, now it is "only a question" of "not being completely out of the race, and seeking cooperation with those digital companies."[4] This applies particularly to the futuristic sectors such as AI and autonomous driving. In reference to the latter, the Volkswagen Group is seeking to enter cooperation with its rival Ford. The German company will invest US $2.6 billion in the Ford subsidiary Argo AI, in the hopes of being assisted in progressing in the field of autonomous driving, particularly with its planned robo-taxis.[5] An independent development is considered hopeless, due to the enormous costs and the technological gap of German AI companies.

Economic Wars' Damage in the Billions

In spite of the immense significance business with the USA has for German industry, their relations with the United States are facing a phase of considerable strain. The economic wars, launched by the Trump administration, to shore up its global political and economic predominance, and threatening to be even further expanded, are creating this strain. According to experts, Washington's threat to impose punitive tariffs on autos imported from the EU, would cause BMW, alone, a €1.7 billion drop in profits, Daimler €2 billion, Volkswagen even €2.5 billion.[6] In addition, the extraterritorial sanctions, the United States is imposing on a rapidly growing number of countries are increasingly affecting German companies. This pertains not only to sanctions on Iran that have deprived German companies of lucrative contracts. The extraterritorial sanctions on Russia, imposed by Washington since 2017, have deprived Germany's economy several billion euros. (german-foreign-policy.com reported.[7]) If the sanctions on Russia's GAZ auto manufacturer are not lifted, Daimler and Volkswagen, who are having cars produced by that company, will lose investments totaling half a billion euros. Other plans for sanctions, that Washington is now elaborating, threaten a substantial portion of Germany's trade with Russia, which is currently totaling €26 billion in exports and in investments, more that €20 billion.

A Fateful Perspective

Should the Trump administration, in its power struggle with Beijing, also revert to extraterritorial sanctions imposed on companies in China, this would place the German industry in a fateful predicament. The People's Republic of China is Germany's third largest sales market (€93 billion) and its third largest investment site. The German Dax enterprises obtain 16 percent of their total revenue in that country. For some Dax enterprises such as Volkswagen, Daimler, and BMW, along with Infineon and the Bayer-derivative Covestro, China has become their most important foreign market - for some, well ahead of the USA.[8] Moreover, in the field of state-of-the-art technologies, German enterprises are not cooperating only with US enterprises, but also with Chinese groups, on a large scale. (german-foreign-policy.com reported.[9]) If forced by the Trump administration's extraterritorial sanctions to cease their business relations with China, this would have devastating consequences for a significant sector of Germany's industry. It would also deprive them of every significant perspective of development, beyond that of the US-dominated West, and condemn them to a comprehensive dependency on Washington. This fateful perspective forces the German economy into complex dual-relations of profitable cooperation with the USA, with simultaneous reinforced resistance to the economic wars being waged by the Trump administration.

Contradictory Situation

The contradictory situation is reflected in the development of Berlin's foreign policy strategies. german-foreign-policy.com will soon report.

 

 

[1] Vgl. die einschlägigen Statistiken des Statistischen Bundesamts (für den Handel) sowie der Deutschen Bundesbank (für die Investitionen).

[2] Ulf Sommer: Die USA sind ein Risikomarkt - nicht nur für deutsche Autohersteller. handelsblatt.com 25.02.2019.

[3] Ulf Sommer: Deutschlands US-Offensive: Dax-Konzerne fahren Investitionen in Nordamerika hoch. handelsblatt.com 14.05.2019.

[4] Lektion in Silicon-Valley-Selbstbewusstsein. Frankfurter Allgemeine Zeitung 10.07.2019.

[5] VW und Ford prüfen schon die nächsten Schritte. Frankfurter Allgemeine Zeitung 13.07.2019.

[6] Ulf Sommer: Die USA sind ein Risikomarkt - nicht nur für deutsche Autohersteller. handelsblatt.com 25.02.2019.

[7] See also Die Ära der Sanktionskriege (I).

[8] Ulf Sommer: Die USA sind ein Risikomarkt - nicht nur für deutsche Autohersteller. handelsblatt.com 25.02.2019.

[9] See also The Battle Over Huawei (II) and Germany in the Economic War (II).