It’s inevitable the Germany will become less competitive in industry because so much of its energy comes from wind turbines and solar panels, which increases the cost of production.
On the one hand, Germany’s strength is that its economy relies on producing goods and selling them to other countries—unlike Britain and America, whose economies rely on their own citizens borrowing money and spending it on services.
On the other hand, this makes Germany uniquely vulnerable to global economic shocks. In 2009, its economy shrank by nearly 6 percent. The crisis hit Europe hard, and at that time over 60 percent of German exports went to Europe.
Many of Germany’s main trading partners are still recovering from the crisis. Germany, in order to pick up the slack, turned to America. In 2016, America accounted for 9 percent of German exports.
This means that nearly 4 percent of Germany’s economy comes from selling to the U.S.
The indirect impact stretches even further. America’s other top trading partners are France (8.3 percent of exports), the United Kingdom (7.1 percent) and China (6.2 percent). These nations’ economies are also closely tied to America’s. When America’s economy slows, these nations’ economies slow too—which means they also import less from Germany.
Making matters worse, Germany’s exports tend to be the kind of products that people first stop buying when times are bad. In 2016, 20 percent of Germany’s export revenue to the U.S. came from the automotive industry. When recession hits, sales of new cars fall fast.
This makes Germany’s exports vulnerable to big decreases. In 2009 America’s economy shrank by 2.8 percent, but its imports from Germany shrank much more. German exports to the U.S. in 2009 were 27 percent lower than in 2008.
If this happened today, the direct effects alone would cause Germany’s economy to shrink by 1 percent. Once the knock-on effect is factored in—with Germany’s other top customers all cutting back at the same time—Germany’s economy could be pushed into a serious depression very quickly.
For Germany at this time, a 5 percent fall in exports means a nearly 2.5 percent drop in the size of the economy. From 2008 to 2009, Germany’s exports fell by nearly 20 percent.
“Understanding the degree of dependency of Germany and its export growth on the U.S. becomes key to analyzing the dynamics of the German economy,” wrote Geopolitical Futures (June 29, 2017). For most of the world, the old adage holds true: When America sneezes, the world catches a cold. But Germany’s massive dependence on exports means it is at risk of pneumonia.