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Who is dependent on whom? : Europe can stand up to the USA and China
Global Challenges is a brand of DvH Medien. The new institute aims to promote the discussion of geopolitical issues through publications by recognized experts. Today a contribution from Prof. Jörg Rocholl PhD, President of the ESMT Business School in Berlin. Further authors are Prof. Dr. Ann-Kristin Achleitner, Sigmar Gabriel, Günther H. Oettinger, Prof. Dr. Volker Perthes ,, Prof. Dr. Bert Rürup and Prof. Dr. Renate Schubert.
Will Europe’s and especially Germany’s export-oriented companies get caught between the fronts if the conflict between China and the USA continues to escalate? The concern has existed since the term “decoupling” became popular.
At first glance, the picture is bleak
At first glance, the picture of great dependency is bleak: China is Germany's largest trading partner. The 30 largest listed companies in Germany achieve an average of 15 percent of their sales in the People's Republic. The German automakers even generate more than 20 percent of their revenues in China.
The importance of China for German exports is only surpassed by the USA. The USA is the largest buyer of German goods, last year German companies exported goods worth almost 120 billion euros to the USA. These examples alone show that any deterioration in relations with Beijing and Washington affects German companies.
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On closer inspection, however, the situation clears up significantly: Chinese companies have so far exported to Germany to an even greater extent than German companies export to China. Last year the goods were worth 110 billion euros. In the European Union, 20 percent of all imports come from China, more than from any other country.
So there is no one-sided, but reciprocal dependency - even if Europe's need for strategic raw materials such as rare earths, for which China is a quasi-monopoly, should not be underestimated. The principle of mutual dependence also applies to trade between the EU and the USA: after all, twelve percent of all EU imports come from the USA.
These economic interdependencies already indicate that Europe can definitely show its colors politically towards Beijing and Washington. In addition, the number of acquisitions of European companies by Chinese competitors, which has increased for years, has recently fallen significantly - and not just because of Corona. Rather, European governments are increasingly skeptical of such takeovers and are countering them accordingly.
France stands up to the USA
The project, mainly driven by France, to tax large digital platform companies, signals that Europe can also stand up to the USA politically. The large American platform companies are among the most valuable companies in the world in terms of market capitalization. They generate large parts of their sales in Europe - and that is why they watch the regulatory and tax developments on the continent with eagle eyes.
All of this shows how much is at stake for all sides. In the globalized world, not only do European companies rely on market access in China and the USA, but also Chinese and American companies on market access in Europe. In the globalized world there is no one-sided dependency.
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This also applies to the relationship between China and the USA. It is true that it is always said that Washington is highly dependent on Beijing because China has become the largest creditor of the United States by buying American government bonds. But how credibly can Beijing actually threaten to stop buying US Treasuries or even sell the bonds in order to put pressure on Washington?
This would ultimately damage China above all for its own economy, for example through an unfavorable development of the renminbi exchange rate against the dollar or a massive decline in the value of American government bonds in the Chinese portfolio. In addition, the gigantic bond-buying programs of the national central banks have largely fizzled out the Chinese potential for threats. Beijing will have no choice but to continue to buy US government bonds in the future and thus give America the opportunity to continue to live beyond its means.
Three conclusions for the triangular relationships
The complex (financial) economic triangular relationships between China, Europe and the USA lead to several conclusions for the coming years: First, international dependencies are far more complex than they might appear at first glance from a European perspective. This opens up design possibilities for intelligent economic policy.
Second, Europe urgently needs to continue working to develop the common internal market as a successful project of the past 25 years for the next 25 years. Third, Europe should finally speak with one language so that China and the US can be heard. When individual EU member states try to assert their interests against Beijing and Washington, the image of David and Goliath inevitably comes to mind. The European Union as a whole, on the other hand, could negotiate on an equal footing with both powers.
Last but not least, the European Union should use its position to moderate the conflict between China and the USA. In any case, it is better to defuse the conflict than to reflect on possible reactions in the event of further escalation. After all, the principle that the British economist David Ricardo described more than 200 years ago still applies: Everyone can benefit from mutual trade, from giving and taking - including the triangle between China, the USA and Europe.
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