ZEW President Franz on Germany’s Position as World’s Number One Exporter

This article appeared in the May edition of the ZEWnews.

World No. 1

While the many political discussion shows on television may be far from entertaining, now and again they can be very informative, for example when they deal with the arguments against reform measures that have either been suggested or already implemented here in Germany. One claim that seems to be particularly popular is that Germany’s competitiveness on the global stage cannot be in such bad shape given the country’s reputation as the world’s top export nation. By this logic, the root of the problem does not lie on the supply side but rather in insufficient overall economic demand.

Only bean counters would object to the claim that Germany is the runner-up in terms of global exports. And that’s nothing to be sniffed at; we were certainly thrilled when Germany came second in the last World Cup. Be that as it may, the title “number two exporter” unfortunately doesn’t mean much and does not serve as strong evidence of Germany’s continued competitiveness on the international arena. The two following considerations should give us pause for thought.

Firstly, Germany’s title is in part the result of the appreciation of the Euro. This may sound paradoxical since an appreciation of our national currency is raising the prices of our exports overseas, making it a truly masterful achievement for Germany to still be among the world’s leading export nations. But wait a minute. Hypothetically, if exports from recent years from the US and Germany to the tune of $100 dollars and €100 respectively were converted at a US Dollar to Euro exchange rate of 1, both countries would be dead even with 100 currency units each. If we use the current exchange rate of roughly $1.20 to €1, however, the same exports would amount to €83 (US) and €100 (Germany) or $100 (US) and $120 (Germany). It can be that easy to become the world’s number one exporter.

Where appropriate, percentage shares should be used as a means of comparison, a method which doesn’t necessarily portray Germany in such a dominant position. According to calculations carried out by the German Central Bank in October 2003, Germany’s share of real internal exports within the Eurozone fell from almost 30 per cent in the 1990s to around 25 per cent last year (with some signs of improvement in the late 1990s). We find a similar picture if we look at Germany’s share of real worldwide exports, which sank from almost 12 per cent in the early 1980s to around 9 per cent, although it has been climbing since the mid-90s, reaching 10 per cent in 2002.

Secondly, we shouldn’t be too quick to celebrate Germany’s position as the number 1 (or runner-up) export nation since a growing percentage of the country’s exports are not based on local value added but rather on imported primary products. In the 1990s, the share of export-induced local value added dropped more than ten percentage points from 72 per cent to around 61 per cent. Though not the only industry affected, the automotive industry serves as a good example. Many of the individual car components are produced overseas in countries where production costs are lower and then imported to be assembled in Germany. However, the full value of the car is included in Germany’s export statistics. Please do not misunderstand me; this is not a rebuke of the import of primary products, even though this often comes as the result of businesses relocating overseas. Labelling these companies as “unpatriotic” is completely misplaced, to put it kindly. If anything, this trend is born out of tax and income policies here in Germany, which are a contributing factor in the exodus of many domestic jobs.

It would be disastrous for Germany to rest on its laurels as the world’s number one exporter – whether this claim is true or not – and to carry on business as usual. And workers should not let populist voices convince them that this is acceptable.