trade relations
Does the German economy need Russia?
Would Russia, for example, be dispensable as a trading partner for the German economy in the long run? Photo: Patrick Pleul/dpa
© dpa-infocom GmbH
The punitive measures against Russia are unprecedented. Will the West permanently cut the country off from world trade? A rethinking of company leaders and association officials has begun.
Russia has largely isolated itself internationally as a result of its war of aggression against Ukraine. Western sanctions are hitting the Russian economy hard.
But the West must also ask itself how trade with Putin’s vast empire should be structured in the medium to long term. How reliable is a partner who alienates the entire world overnight with lonely decisions? Can broken relationships be repaired? And if not: would Russia, for example, be dispensable as a trading partner for the German economy in the long run?
“Do no more business with this regime”
“Many of those responsible have told me very clearly with regard to Russia: You can no longer do business with this regime,” said the President of the Federation of German Industries (BDI), Siegfried Russwurm, just a few days after the Russian invasion of Ukraine February 24th. “Many companies are considering the consequences of withdrawing from Russia, even without sanctions,” said the BDI President in the “Handelsblatt”.
“All economic participants must now question their business relationships and examine exactly what is justifiable,” warned church, social and sustainability banks in Germany in a joint statement at the beginning of March. Carsten Mumm, chief economist at private bank Donner & Reuschel, expects a “reorganization of global trade relations” as a result of the Ukraine war: “The trend towards the regionalization of production and the efforts of economies and companies to become less dependent on individual supplier countries and thus more resilient , is likely to be one of the driving economic forces of the coming years.»
Moscow is not important for Germany as a whole
Good news from a German point of view: Russia is not really important as a sales market for Europe’s largest economy. Just about two percent of German exports go there. Trade had already been scaled back after the punitive measures imposed as a result of the Russian annexation of Crimea in 2014. According to the Federal Statistical Office, the Russian Federation ranked 14th among the most important buyer countries for goods “Made in Germany” last year with almost 27 billion euros. German manufacturers primarily supplied machinery (EUR 5.8 billion), motor vehicles (EUR 4.4 billion) and chemicals (EUR 3 billion).
But how quickly can Germany make itself independent of Russian raw material imports? Natural gas and oil accounted for almost 60 percent of Germany’s imports from the Russian Federation last year, at a value of 19.4 billion euros. 55 percent of natural gas imports to Germany come from Russia, around 35 percent of oil and 50 percent of hard coal.
“Switching to other sales and procurement markets is not easy and is usually not possible in the short term,” said Dirk Jandura, President of the Federal Association of Wholesale, Foreign Trade and Services (BGA). “Trade barriers have already spread worldwide since the beginning of the corona pandemic. Many companies now also have to do without suppliers in Ukraine and Russia. This affects, for example, the import of raw materials from aluminum to coal or wheat. »
60 percent of Germans want to stop imports of Russian gas
In a survey published in early March for Wirtschaftswoche, 60 percent of Germans approved of stopping Russian gas imports. The federal government is trying to be more independent when it comes to energy. But change doesn’t happen overnight. Even production facilities, such as those of car manufacturers, cannot simply be thrown out of the ground elsewhere.
Nevertheless, the economists at the Deutsche Bank fund subsidiary DWS also expect fundamental changes in world trade: “The Putin shock is likely to be the third major setback for globalization and global supply chains in recent years, after the trade war between the USA and China and the disruptions to supply chains associated with Covid.”
“Putin points Russia into economic decline”
Putin’s Russia will also have to reorient itself, says Donner & Reuschel chief economist Mumm: “In the medium term, Russia will have to tie itself more closely to China for lack of alternatives. However, since China is significantly less dependent on Russia, Beijing is likely to determine the terms of future cooperation.”
Putin shows Russia “more or less the way to economic decline,” said the Vice President and head of economic activity of the IfW Kiel, Stefan Kooths, at the end of February in the ARD daily topics. “Globalization is reversed in Russia.”
And that also has consequences for trading partners: companies will no longer just trim global supply chains for the highest possible cost efficiency, but will increasingly check them for reliability. In this scenario, consumers should be prepared for rising prices: If production is brought back to Germany from low-wage countries and companies have to stock more raw materials and parts, this causes costs – and sooner or later they end up with the consumer.