Geopolitics and Trade: German Economists Experts' Assessment of Dependencies on China
On 4th July, the European Commission has imposed preliminary countervailing duties on electric cars made in China. Extensive investigations by the European Commission have shown that Chinese car manufacturers benefit from high state subsidies along the value chain (European Commission, 2024). These subsidies distort competition to the detriment of European manufacturers. The countervailing duties are between 17% and 38%, depending on the manufacturer. In the 47th ifo and FAZ Economists Panel, we take this trade dispute as an opportunity to ask German economics professors for their assessment of trade relations with the People’s Republic of China. 162 economists took part in the survey conducted from 25th June to 2nd July.
China: Partner, Competitor, Rival, and Adversary at the Same Time
65% of the German economics professors surveyed see China as a partner. Above all, they emphasize the strong economic ties and trade relations, and the resulting dependencies that already exist today. At the same time, almost as many respondents (59%) state that China is an economic competitor that actively engages in predatory competition in a wide range of economic sectors. In certain areas, such as e-mobility, they say that China has caught up technologically or is already superior to German companies. They emphasize that China is increasingly competitive in industries in which Germany has traditionally been strong. Increasingly higher value added and strong research and development activities in China are being recognized. In this context, reference is frequently made to the systematic support of key industries through subsidies from the Chinese government. For more than half of the economics professors surveyed (59%), the People’s Republic of China is a systemic rival. They point out that China and Germany are guided by fundamentally different concepts of social, political, and economic systems. In addition, 51% of the German economists even see China as a geopolitical adversary. They justify this by citing China’s support for Russia in the war against Ukraine, its aggressive geopolitical intentions, for example towards Taiwan, its dealings with internationally isolated dictatorships such as North Korea and Iran, and its efforts to destabilize the West. Around 5% of respondents answered “don’t know.” Multiple responses were permitted.
Germany Much More Dependent on China than the Other Way Around
There are a number of dependencies in current trade relations. In terms of trade relations, as many as 88% of economists rate Germany as very highly or highly dependent on China. Although a similar picture emerges for the EU’s dependencies on China, they are rated as less pronounced, with only 63% rating them as very high or high. In addition, 34% of participants rate the EU’s dependency on China as medium. For the German economists, the dependencies in trade relations are primarily one-sided. Only 13% rate China’s dependence on Germany and the EU as very high and 29% rate it as high. Around half of the respondents rate China’s dependency on Germany and the EU as medium. As many as 36% of participants rate China’s dependence on Germany and the EU as low, while 21% say it is very low. Fewer than 2% of participants said the dependency relationship was the other way around.
Against the backdrop of asymmetrical dependencies, the economists fear that the Chinese government will use the economic dependencies to assert its (foreign) policy interests against Germany. For the next one to five years, 47% of participants see a high risk of this happening. Moreover, 25% even consider this risk to be very high. In contrast, 23% rate the risk as medium. Only 3% rate it as low and 1% as very low. For the time horizon of six to ten years, 44% of participants rate the risk as very high and 36% rate it as high. For this time horizon, only 13% rate the risk of economic dependencies being used to further Chinese (foreign) political interests as medium. Only 2% responded with low or very low, while 5 percent answered “don’t know.”
De-Risking is the Preferred Guiding Policy When Dealing with China
At 69%, the clear majority of economists are in favor of de-risking as a policy to guide trade relations with China. This is defined as minimizing economic risks and reducing import dependencies. Supporters of this policy call for dependencies in critical and security-related industries, such as the telecommunications and pharmaceutical industries, to be reduced. The diversification of sources of supply and sales markets is also increasingly recommended. It should in addition be ensured that critical and economically important goods can also be produced within the EU. Furthermore, higher research and development spending is recommended, especially in those areas in which China is now a leader (e.g., batteries, electric cars, and AI). Only 7% of participants consider full economic decoupling from China as the preferred policy for China. Around 15% of respondents regard no restrictions at all in entrepreneurial decisions as the best approach. Only around 2% of economists suggest intensifying trade with China. Around 2% answered “don’t know.”
No Clear Opinion on Countervailing Duties on Electric Cars from China
Opinions among the economists are divided about the countervailing duties implemented by the European Commission for electric cars manufactured in China. One third of participants stated that the countervailing duties were exactly right. The main reason for this position is that there is evidence of subsidies by the Chinese government, and this must be counteracted. At the same time, one third of the economics professors surveyed think that countervailing duties would not be appropriate at all. Above all, they cite the risk of an impending trade war. Moreover, tariffs would not eliminate the dominance of Chinese electric cars or make European manufacturers more efficient. They believe that countervailing duties are not a means of strengthening domestic competitiveness. In addition, European consumers and European climate targets would benefit from the availability of affordable electric cars from China. Around 11% are in favor of countervailing duties, but to a lesser extent than planned by the European Commission. They argue that this could protect the European automotive industry in the short term, but that the industry would have to adapt to the new circumstances in the medium term and make up for the failure to transition to e-mobility. Lower countervailing duties could on the one hand show a response while minimizing the risk of a trade war on the other. Around 17% of participants have no clear opinion on this and only around 6% recommend higher countervailing duties than those planned by the EU.
When asked whether the European Commission should respond to Chinese subsidies with its own subsidies in “future industries,” the clear majority of participants answered no (53%), citing the inefficiency of such a measure and the risk of a global subsidy race in this context. Furthermore, both companies and consumers should decide for themselves what should be seen as a “future industry.” They are concerned that the EU and politicians in general do not have enough information about which industries have a promising future and that most subsidies would therefore flow only to the losers of structural change. The 34% of participants who are in favor of European subsidies state above all that this could reduce dependencies on China. They also say that the EU has already been in an international subsidy race for a long time and that it is therefore essential to introduce its own subsidies. 13% of economists have no clear opinion on this.
