As of: 15.09.2021 8:03 a.m.
Great Britain has been one of Germany’s ten most important trading partners for 70 years. That could change in 2021. Brexit will change the economic relations between the two countries significantly.
Hardly any German students at British universities, stricter entry rules, empty shelves due to a lack of truck drivers, high tariffs or rising fees in payment transactions: There are probably better conditions for an anniversary of the German-British Chamber of Commerce and Industry (AHK), which you today Celebrates 50 years of existence. Because the consequences of Brexit are causing more and more worries.
The United Kingdom is becoming less important economically for Germany. AHK boss Ulrich Hoppe recently warned that the two countries could “drift apart economically or socially.” In addition to the complicated customs clearance, the exchange of services could also become more difficult.
Great Britain is slipping out of the top ten trading partners
The data from the Federal Statistical Office reflect the poor development: This year, for the first time since 1950, Great Britain could slip out of the top ten most important German trading partners. Accordingly, the movement of goods fell in the first half of the year by 2.3 percent to 48.3 billion euros. This puts the United Kingdom in eleventh place in the ranking, just behind the Czech Republic.
German imports from Great Britain in particular collapsed from January to June – by almost eleven percent to around 16 billion euros. The reduction in imports of food and feed (minus 38.5 percent), textiles (minus 53 percent) and pharmaceutical products (minus 47 percent) was of particular importance.
“The slump in the ranking of the most important trading partners is more due to the import than to the export side of Germany,” explains Rolf Langhammer, trade expert at the Kiel Institute for the World Economy (IfW), in an interview with tagesschau.de. While the United Kingdom was still number five among the German exporting countries in 2020, it has already fallen back to eleventh place on the import side. This loss of importance is now continuing. Other countries would overtake the UK as a procurement market.
Prof. Dr. Rolf J. Langhammer is a trade expert at the Kiel Institute for the World Economy (IfW).
Image: IfW Kiel, Studio 23
Paperwork and costs
In the first two months of 2021 alone, shipments from the island fell by 39.6 percent. One reason for the free fall: the numerous new regulations. For companies, the trade and cooperation agreement negotiated between the EU and Great Britain, which has been in force since the beginning of 2021, often means more bureaucratic work and tighter controls.
“In the agricultural trade, for example, the EU very carefully checks the compliance of British products with EU rules to prevent plant diseases and protect consumers,” said Langhammer. That is a lot of paperwork for British exporters. The German Chamber of Commerce and Industry (DIHK) assumes that German companies will also have to submit around ten million customs declarations per year in the future. Estimated cost: 400 million euros.
According to Langhammer, the main imports from the UK are planes and aircraft parts, medical items, as well as oil and automobiles. “Since the referendum, many German importers have looked for other sources of supply,” says the expert. This process will continue. In addition, due to the sustainable transformation, Germany’s import structure will change regardless of Brexit. In the future, for example, green electricity from other European countries could replace oil imports from the island.
Uncertainty creates problems
In 2016, the year of the Brexit referendum, Great Britain was Germany’s fifth most important trading partner after China, France, the USA and the Netherlands. “The share of the United Kingdom in overall German trade has since declined by around 1.5 percentage points on both the export and import side,” emphasizes Lisandra Flach, head of the Ifo Center for Foreign Trade tagesschau.de.
The uncertainty about the future of economic relations between Great Britain and Germany played an important role in this. Large companies in particular had largely anticipated the effects of Brexit and had already adjusted production in some cases before the transition phase, according to the professor of economics at the Ludwig Maximilians University in Munich. “The economic relationship between Germany and the UK is very close and it will stay that way. However, we will feel the consequences of Brexit for a long time.”
The German Chamber of Commerce and Industry also fears further damage to German-British trade relations. “From the point of view of the German economy, it is worrying that the exit agreement has been called into question again and again by Great Britain since the completed Brexit and in some cases also broken,” said DIHK foreign trade director Volker Treier recently. “The British plans to deviate from EU rules and standards, for example in data protection, food or chemicals, are increasing the uncertainty for German companies in the UK business.” This applies in particular to the transport, automotive and chemical sectors.
Exports have also fallen since the referendum
In addition to imports, exports to the United Kingdom have also steadily declined in recent years. While German companies shipped goods worth 89 billion euros to the island in 2015, it was just under 67 billion euros in 2020. Smaller companies in particular suffer from the additional administrative effort. It is therefore no longer economically viable for many to serve the British market.
And then there are the high tariffs on imports from the EU: According to the accounting firm UHY Hacker Young, British companies and consumers paid around 2.2 billion pounds (2.58 billion euros) in customs duties between January and July – an increase of 42 Percent compared to the previous year. The higher costs mean a further burden on the British economy, which is already having to deal with the consequences of the Corona crisis. From October on, there is also a threat of a new import ban on various foods such as chilled minced meat.
So is saying goodbye to the top ten trading partners really just the beginning of the end of economic relations? According to the AHK not. Because even if bilateral trade has recently declined, Great Britain remains an important market with around 67 million people, said AHK boss Hoppe. German companies in particular would continue to have good opportunities. “The British like to buy what we Germans produce. German products have a very good image here in terms of quality and reliability. That won’t change.”
On the way to insignificance?
The latest export figures are a ray of hope. German exports to Great Britain climbed, albeit only slightly, by 2.6 percent to around 32.2 billion euros in the first half of the year. In July they grew by 7.2 percent to 5.9 billion euros compared to the same month last year.
IfW expert Langhammer slows the euphoria: “I am skeptical whether we can speak of a trend reversal.” On the one hand, the first half of 2020 was extremely weak due to corona. On the other hand, the economic dynamics in general on the island are not really great, which influences the income effect. The price effect caused by the exchange rate also plays a role.
Not only because of the still relevant trade volume, the economist is certain: “The United Kingdom will remain an important trading partner. It may also be possible to forge joint alliances with countries like China.” Overall, the UK is expected to stay among the 15 most important partners. The relationship depends heavily on whether the economic slump caused by Brexit remains temporary.
After Corona recovery: labor shortage in Great Britain
Gabi Biesinger, ARD London, 14.9.2021 11:49 a.m.