December 2, 2023

The interdependence of trade between China, the European Union and Germany

The interdependence of trade between China, the European Union and Germany

An inventory of the interdependencies in foreign trade between the EU and Germany on the one hand and China and Russia on the other is essential so that we can reach political conclusions on a safe empirical basis at the turn of the century.

Dependencies identified on the basis of comprehensive information on value-added trade with TIVA data from the Organization for Economic Co-operation and Development (status of data 2018) are generally greater than if, as usual, only merchandise trade were considered. In terms of value-added import and export quotas in trade with all countries, China is somewhat more dependent on the EU than the EU does on China. However, if value-added imports and exports are put in relation to the economy as a whole, not only does the stock decline significantly because domestic value-added adds to the denominator, but China’s dependence also decreases (relatively): on the EU on the import side, There is 2 percent of the total value added in EU final consumption from China, and on the EU export side, 2 percent of the EU’s total value added goes to Chinese final consumption. China’s share of imports and exports is 2.2 percent each, so China’s dependence on this critical level is only slightly higher. On the export side, the value-added related function dependency can also be calculated. Measured in terms of total employment, shares on both sides are similarly low as in the case of shares of total economic value added. But in absolute numbers they differ greatly in 2018: in China, 15.7 million jobs depend directly or indirectly on EU final consumption and 4.1 million on final consumption in Germany, while in the EU there are about 3.5 million and in Germany depend about 1.1 Million jobs over final consumption in China. On the export front, Germany is relatively more dependent on China than the other way around: 2.7% of Germany’s total EVA and 2.4% of total employment depends on exports to China. In China, on the other hand, this ratio is only 0.5% and 0.6%.

The main concern is the development of dependencies. The European Union and Germany continue to expand their trade shares with China (at a pace not reduced by value-added trade data). In contrast, China is reducing its dependence on major macroeconomic trade shares, largely due to the decline in China’s trade openness for about 15 years. In 2007, 4.4 percent of Chinese total value added was still based on final consumption in the EU, but more recently it was only 2.2 percent (2018). This trend should also continue on the import side as the Chinese government wants to further reduce its dependence on foreign countries through the dual-trading strategy. If this development continues, the EU will become more dependent on China in the medium term (like Germany already) than the other way around. So it is time to reduce the EU and Germany’s dependence on China. It’s not about separating, but about reducing dependencies, primarily through more diversification. In addition, some recommendations regarding economic policy were made.

The European Union and Germany are less dependent on Russia than the other way around. In Russia, on the export side, a notable proportion of the total GVA of 9.4 percent depends on final consumption in the European Union, and on the import side, 7.4 percent of the total value added in Russian final consumption comes from the European Union (2018). China’s dependence on the West (USA, EU, Japan, South Korea, UK, Canada, and Australia) on the import-export side accounts for 7.2 and 8.4 percent of China’s total value added on a similar order of magnitude as Russia from the EU . . That’s an amazing 61 million jobs in China. But if Russia’s heavy dependence on the European Union does not prevent Russian President Putin from escalating aggressive military, would it be different in China with a similar dependence on the West as a whole? It also presumably depends on the effectiveness of sanctions against Russia

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