Tag Archives: deglobalization

I Can’t Imagine Germany without China

Germany is struggling to pick sides in the escalating dispute between the U.S. and China over issues including trade and human rights, amid mounting American pressure and Beijing’s authoritarian drift. Of all advanced economies outside Asia, Germany has the deepest economic ties in both camps and would have the most to lose from a Cold War between Washington and Beijing.

Berlin’s snaking trade links with China and the U.S. have served Germany well in the past two decades, providing it with steady growth, near full employment and full public coffers that have allowed the deployment of more than €1 trillion ($1.13 trillion) in measures to support its economy during the pandemic.  Now, Germany’s reluctance to take sides is diluting Europe’s broader efforts to present a united front to China, undermining the bloc’s power to shape a new global architecture…

Germany’s export-oriented economic model means it can’t really choose at all. It needs both the US and China.  China is Germany’s largest trading partner; the U.S. its biggest export market. And they stand neck-and-neck: Last year, Germany exported €119 billion of goods to the U.S. and €96 billion to China….Around 28% of jobs in Germany are directly or indirectly linked to exports, and in manufacturing that figure is 56%, according to the German Ministry for Economic Affairs. Germany exports nearly as much as the U.S. despite having only one-quarter the population.

Germany’s world-beating engineering companies supplied the factory equipment and the infrastructure that powered China’s transformation into the world’s top manufacturer. Harnessed to the fast-growing giant, Germany rebounded strongly after the financial crisis and weathered the eurozone debt crisis…

“I can’t imagine Volkswagen without China,” said Ferdinand Dudenhoeffer, director of the Center Automotive Research at the University of Duisburg-Essen.  Volkswagen CEO Herbert Diess, who refers to China as his company’s “second home,” has recently praised China’s handling of the coronavirus pandemic. The company in May said it would pour $2 billion into China’s electric-car market….

Excerpts from Tom Fairless et al., U.S.-China Tensions Leave Germany Squirming in the Middle, WSJ, June 24, 2020

Everyone for Themselves: COVID-19 Drug Reserved for U.S.

On June 29, 2020 the US Department of Health and Human Services (HHS) announced an agreement to secure large supplies of the drug remdesivir for the United States from Gilead Sciences through September, allowing American hospitals to purchase the drug in amounts allocated by HHS and state health departments….HHS has secured more than 500,000 treatment courses of the drug for American hospitals through September. This represents 100% of Gilead’s projected production for July (94,200 treatment courses), 90% of production in August (174,900 treatment courses), and 90% of production in September (232,800 treatment courses), in addition to an allocation for clinical trials. A treatment course of remdesivir is, on average, 6.25 vials.

Hospitals will receive the product shipped by AmerisourceBergen and will pay no more than Gilead’s Wholesale Acquisition Price (WAC), which amounts to approximately $3,200 per treatment course.

Excerpts from Trump Administration Secures New Supplies of Remdesivir for the United States, June 29, 2020

Made in China, Always? COVID-19, the Survival of Resilience

As they walk through the valley of the shadow of death brought by COVID-19 chief executives and corporate strategists are beginning to look to the post-covid world to come. What they think they see, for good or ill, is an acceleration. Three existing trends—the deglobalisation unpicking the business world that grew up in the 2000s; the infusion of data-enabled services into ever more aspects of life; a consolidation of economic power into the hands of giant corporations—look likely to proceed at a faster rate than before, and perhaps to go further, too…

China’s government may encourage its state-owned firms to go global by buying distressed car companies in Europe. The share price of Daimler is less than half what it was when Geely, a Chinese carmaker, bought a 10% stake in 2018. Car companies may also see offers from technology giants keen to improve co-operation between metal bashers and the engineers of autonomy—currently wary at best. The healthier airlines, such as Qantas and IAG, owner of British Airways, will snap up airport slots from their bankrupt rivals and may try to acquire others only just staying aloft. Private-equity firms, which have mountains of committed investor cash, may start buying up fundamentally sound but impecunious suppliers in various industries, aware that when demand returns such companies will see its first fruits…

In 2019 many global firms sought to reduce their dependency on China. One of their favoured strategies was to put more business into factories elsewhere in Asia.  But the acute stage of China’s covid-19 crisis made it clear how essential China remains as a provider of inputs to such factories elsewhere in Asia and around the world. “What people thought was a global supply chain was a Chinese supply chain,”…

Joerg Wuttke, president of the EU Chamber of Commerce in China, says that if there is one lesson people are drawing from the pandemic in this regard it is that “single source is out and diversification is in.” In other words, companies do not just need suppliers outside China. They need to build out their choice of suppliers, even if doing so raises costs and reduces efficiency

Excerpts from Sinking, Swimming and Surfing, Economist,  Apr. 11, 2020, at 13