What is Donald Trump's Most Profitable Business?
Germany and USA: closely intertwined despite Trump
Looking back on three and a half years of US foreign trade policy under Donald Trump is sobering: The transatlantic free trade agreement TTIP was buried, punitive tariffs were imposed on EU imports such as aluminum and steel, and the White House repeatedly threatened European cars with punitive tariffs of 25 Percent to be occupied. The last threat in particular made an impression on German carmakers, because Daimler, the VW Group and BMW earn a lot of money on the US market.
On closer inspection, however, not so much has changed in German-American economic relations. The USA continues to be a particularly close partner for German companies - not only when it comes to exchanging goods and services, but also when it comes to research and development.
And that is exactly the key message of a current Prognos study entitled "How closely is Germany (still) interwoven with the USA?"
Icy tone - shiny business
Even though the tone of voice has become increasingly icy since Donald Trump took office in January 2017 and he repeatedly denounced Germany as one of the main culprits for the gigantic US current account deficit, little has changed. Although the US President repeatedly criticized how unfair it was that he saw many Mercedes models on New York's 5th Avenue, but hardly any Chevrolets on Germany's streets: until today there have been threats.
The USA continues to be Germany's most important sales market for export goods, ahead of France and China. The US share of German exports rose from around seven percent in 2010 to around nine percent in 2019. In absolute terms, this increase has been even more impressive over the past ten years: in 2019, goods worth around 118.66 were sold Billions of euros were exported from Germany to the USA, in 2010 it was only 65.57 billion euros. The USA is also a key economic partner for imports and ranks third after China and the Netherlands, the current share of German imports: around six percent.
German drugs and cars in great demand
In some industries, however, the importance of the US market is significantly higher. For example, 17 percent of German pharmaceutical exports now go to the USA, where the market for pharmaceuticals continues to grow. The US market is also extremely important for German car manufacturers and its importance has increased further in recent years. German manufacturers such as BMW expanded their production facilities in the US even before Trump took office and can thus supply the US market without being directly affected by import duties.
Between 1994 and 2020, over five million vehicles were built at the BMW plant in Spartanburg; more than half of all BMWs sold in the USA came from there. With the production of the SUV models of the X series in South Carolina, BMW also rose to become the largest car exporter in the USA in the mid-2010s. More than half of all Spartanburg cars built between 2010 and 2019 were delivered to customers outside the United States.
Nowhere does Germany invest more
Germany and the USA are also closely linked when it comes to investments. No other country has direct investments from German companies flowing into it. Almost a third of German direct investments go to the USA, where Germany has invested as much with a volume of 335 billion euros as in the five most important European countries combined. "This shows how important it is for German companies to be permanently on the US market Export relationships can be broken off more quickly, but behind an investment decision in the USA lies the strategy of establishing long-term business abroad, "the authors of the Prognos study emphasize.
There is also substantial investment in the opposite direction: in 2017, the US share of foreign direct investment in Germany was nine percent. The USA is in third place.
BMW: Largest US car exporter thanks to its own production in the US plant in Spartanburg
German research in the USA
Cross-border cooperation in research and innovation is also close. What is worked out and developed at US research locations is clearly reflected in the patent applications: In no other foreign market do German companies register more patents than in the USA. The IT area is particularly important here: According to current Prognos calculations, 19 percent of the patents for IT methods in the digital technology area and nine percent of the patents for computer technology come from German companies from the USA.
The USA is thus a central innovation location for the German economy, not only in the IT Mecca of Silicon Valley. "The location factors for German companies in the field of research and innovation are very favorable in the USA. The USA is fundamentally very open to research cooperation in both the private and academic sectors - in contrast to China," explains Prognos' chief economist Böhmer. It is comparatively easy for foreign companies to found and develop their own US research centers. Unlike in China, they would not have to fear a forced technology transfer and could buy innovative companies or start-ups in the USA.
"The German and American research and innovation landscapes complement each other excellently in many areas. The Americans are inventing the radically new, we are improving it and applying it in an" engineer-driven "manner. The best example is the development of applications in the Internet of Things, in other words, with digital solutions in industry. The research cooperation with the Americans is of particular importance; we should take good care of them at all levels.
Major investments in both directions: Planned Tesla gigafacory in Grünheide in Brandenburg
Hope for the Biden effect
The Prognos researchers warn, however, against expecting the election of the Democrat Joe Biden with a complete departure from Trump's "America first" policy. "Even under President Biden, the US would not turn around in its foreign trade policy. The tone and willingness to think and act in alliances should change," says Michael Böhmer. Biden's style and strategy are less confrontational, but the goals are quite similar. In the trade conflict with China, for example, Biden is more likely to seek solidarity with Europe, as two large trade blocs can represent their similar interests more effectively vis-à-vis China. "In our estimation, however, foreign trade policy will remain protectionist. Companies and politicians on this side of the Atlantic should be aware of this," said Böhmer.
It is all the more in the German interest that economic relations improve again, because a departure from the US market would entail major losses for Germany. "The ties with the USA are traditionally close, their extent is significant and they have intensified in some areas, for example in trade, despite the conflicts in recent years," said Böhmer.
Joe Biden could seek alliance with the EU in the trade dispute with China
Trump or Biden: Relationships remain close
There are concrete signs that Biden could settle the disputes with the EU if he was elected and would seek alliance with the Europeans in the trade conflict with China. At the end of September, Biden's foreign policy advisor Tony Blinken announced in a virtual appearance in front of representatives of the US chambers of commerce that Biden was determined to end the trade conflict with the EU. "The EU is the largest market in the world, we have to improve our economic relations," said Blinken, who was security advisor and deputy interior secretary under Barack Obama. "And I think we have to end an artificial trade war that the Trump administration started."
Blinken sees "ample scope" for increased trade between the US and the EU, but criticized "a growing imbalance in trade in agricultural goods due to rules that prevent us from selling goods on which we are very competitive".
Regardless of who will rule the White House from January 2021, the United States will remain one of Germany's most important, if not the most important economic partners, according to the Prognos researchers. "This applies to joint trade, to the attractiveness of the sales market, to the location for direct investments and as a partner for research and innovation."
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