Non-Tariff Barriers, Industrial Subsidies May Haunt Recovery, Economist Says
Germany is benefiting from both its use of partial unemployment and its handling of the COVID-19 pandemic, and manufacturers in electronics, machinery and equipment and the auto sector are back to pre-crisis levels, according to Ludovic Subran, chief economist of Allianz. Subran, who was speaking on a June 9 webinar on globalization hosted by the American Institute for Contemporary German Studies at Johns Hopkins University, said German firms will have an edge over those in other countries that didn't keep workers employed during the shutdown measures taken to control the spread of the novel coronavirus that causes COVID-19.
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“There is an inventory edge in trade. So if you had inventory stocks, you are winning market share,” he said. And, just as in the last recession, when the strength of various banks was revealed by the crisis, in trade, too, “we also start to see little by little what happens when the tide goes out.”
Because Germany is richer than many other countries, it has also been able to do aggressive Keynesian counter-cyclical spending, he said, which will be distorting, eventually. “We will need at some point to understand how you unplug some of this state support,” he said.
Subran predicted that there will be non-tariff barriers in Europe, either with investment restrictions or by passing a border adjustment tax for imports from countries that are not doing as much to prevent climate change. “Europe wants to be the only one heralding a green recovery,” he said.
Subran said that before the pandemic, he heard from a lot of German CEOs that they felt like they were being forced to pick between the U.S. and China, a dilemma they wanted to avoid. He said their debt is in dollars, but their customers are in Asia. But he said now, German CEOs have forgotten the U.S.-China trade war, and are saying they feel they have to pick between Europe and the rest of the world.
Like most economists, Subran does not like the idea of government officials interfering with business decisions on how to arrange their supply chains, and is concerned that Germany is abandoning its traditional posture for more interventionism. “I’m very worried about the temptation to over-administer globalization after the crisis,” he said. He questioned whether German consumers would choose to pay 10% to 15% more for goods so that they can be made in Germany. “We forget [that] in the end it’s the price that matters.”