A move to restore domestic production of key goods in Germany – mostly from China – could lead to a gross domestic product decline of almost 10%, a recent paper has suggested.
Near-shoring to neighbouring countries would also have a clearly negative effect of a comparable magnitude, the report published by the IFO Institute for Economic Research said.
Bringing back production domestically would be contradictory to international trade purposes, the researchers said in the report, titled Strategies against the bottleneck recession: What helps with supply bottlenecks and rising prices.
“It is precisely international trade that offers companies and national economies a kind of insurance function against country-specific shocks,” they wrote, adding that only 10% of German companies are planning to expand procurement in Germany or in other European countries.
Global supply chains have come under pressure. In the course of the past year, the prices for numerous raw materials, preliminary products and goods of all kinds have risen significantly.
“But the advantages of the international division of labour continue to prevail,” Volker Treier and Carolin Herweg, foreign trade advisers at the Association of German Chambers of Commerce and Industry (DIHK) concluded.
Wolfgang Weber of ZVEI, the electronics industry group, estimates that this year’s sales in the electronics and digital components industry could be up to 10% higher without the existing massive bottlenecks.
Challenging Circumstances
In some cases, companies have to wait weeks or months for ordered materials and have tried to adapt their supply chains to the challenging circumstances in recent months, they noted.
Weber said the semiconductor industry should be expanded in such a way that a high degree of “technological sovereignty” can be ensured.
Ronald Bogaschewsky of Julius-Maximilians-Universität in Würzburg, sees a way to greater resilience in reducing dependency on imports of raw materials.
“Recycling, the bio-economy and the use of regenerative resources could be a sustainable strategy for raw material supply,” he suggested.
Global supply chains are therefore vulnerable to geopolitical factors and are negatively affected by the trade restrictions that often accompany them, said Katrin Kamin of the Kiel Institute for the World Economy (IfW Kiel).
She pointed to efforts in some countries, notably the US and China, to “resort to geopolitical means to achieve economic and foreign policy goals”.
In general, companies could mitigate the resulting risks for supply chains by diversifying their portfolio across trading partners and countries, as well as through contracts, she said.
“Last but not least, the European internal market is an important protection against global dependencies and vulnerabilities,” Kamin added.
- George Russell
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