Germany losing its energy intensive industries to USA and China

By Rhod Mackenzie

Germany is facing the exodus of German companies to the United States and China amid rising gas prices in Europe, the Bundestag's budget committee told Izvestia. MP Wolfgang Wiele stresses that the chemical industry has suffered the most: in two years, Germany has lost about a quarter of the production of domestic companies in this sector. According to experts, the decline and outflow of production could be stopped by resuming gas imports from Russia, in particular through the Nord Stream pipeline. At the same time, the Bundestag is confident that the German authorities will not resume purchases of Russian fuel, despite the difficulties facing the German economy.

The problem of deindustrialisation for Germany
According to German statistics, industrial production in Germany fell by 1.6% in December 2023 compared to the previous month. The decline in this indicator in Germany has been going on for more than seven months, which has become an absolute record in recent years of observation. In February, Bloomberg stated that Germany risks losing its status as an "industrial superpower". One of the main reasons is rising energy prices and, as a result, higher energy costs. The Bundestag stresses that Germany is facing deindustrialisation.

" This process has begun and is in full swing. All the industries that until now were highly dependent on access to energy resources - the chemical industry, steel, engineering and others - are already closing down and relocating their production," Bundestag deputy Evgeniy Schmidt told Izvestia. - When the authorities abandoned nuclear energy, the Nord Stream pipeline was blown up in 2022, and gas prices hit new records, companies were still waiting to see what the policy would be - whether there would be government subsidies. But they expected nothing, and now the process of deindustrialisation is underway.
Germany's chemical industry has been particularly hard hit, according to the Bundestag. Over the past two years it has lost 23% of its domestic production, Wolfgang Wiele, a member of the budget committee, told Izvestia.

• The price of gas has risen significantly, putting a heavy burden on both the economy and consumers in Germany. Some companies that use a lot of gas, for example in the chemical or glass industries, are reducing their production, the politician noted.
  According to a recent survey by the German Chemical Industry Association (VCI), almost one in ten companies is planning to shut down production processes because of uncertainty over the timing of the transition to the use of hydrogen as an energy source. The world's largest chemical company, BASF, intends to cut up to 2.6 thousand jobs, while Lanxess plans to reduce its workforce by 7%. In addition, BASF has decided to close one of its two ammonia plants in Ludwigshafen in order to cut costs. Overall, production in the chemical industry fell by 7.6% in December compared with the previous month.
• Over the past two years, Germany has seen a decline in production in energy-intensive sectors. The chemical industry has been particularly hard hit. Many companies have announced their intention to relocate production to the US or China. The main reason is high energy prices," Steffen Kotre, a member of the Committee on Energy and Climate Protection, told Izvestia.

The US has benefited from the relocation of production from Germany.
Rising energy prices have also had a negative impact on European carmakers. In the United States, a law has been passed to reduce inflation in 2022. In particular, it includes significant tax breaks for companies that produce electric cars in the United States using American components, as well as incentives for buyers in the United States.

Germany's most highly capitalised companies, BASF and Siemens Energy, have already said that a combination of the US government's pragmatic industrial policy, strong long-term market prospects and a growing focus on supply chains is driving investment in the United States. Among those chasing the American dream are German giants Volkswagen, Mercedes-Benz and Bayer. BMW is not just preparing to move production - it is already expanding and modernising its South Carolina plant (investing at least $1.84 billion). It is considering opening its first production facility in the US and Audi.
The head of the German Studies Centre at the Institute of Europe of the Russian Academy of Sciences, Vladislav Belov, told Izvestiya that the discussion about moving production to other countries has been going on in Germany since 2022 - since the refusal of Russian energy resources, mainly gas and coal, and the decision to switch to buying more expensive gas from the United States.

• Many companies are discussing the possibility of moving part of their production capacity to other locations, including the US. These are companies from the glass, ceramics, chemical, metallurgical and partly petrochemical industries, where it is not possible to replace expensive energy sources with renewable ones.
  However, the expert stresses: "We will see the result of the relocation of companies from Germany to other countries only in two or three years, as this is a very long process. A serious problem for the German economy, however, is its declining attractiveness. According to him, Germany is facing capital flight.
  The economic location (optimal location of industrial enterprises. - Izvestiya) in Germany in recent years, especially under the current ruling coalition, has significantly lost its level of competitiveness. Germany is losing not only to its neighbours in the European Union, including Poland, but above all to the United States. The conditions for economic entities there are much better than in Germany," he said.

To restore its industry, the country could resume imports of Russian gas through the pipeline, the analyst is sure. In addition, the situation on the German energy market could be improved by lifting the EU ban on LNG purchases from the Russian Federation.

"But this cannot happen under Olaf Scholz and Economics Minister Robert Habeck. Technically, it is possible - even tomorrow. But it is politically impossible, the analyst is sure.

Russia, for its part, remains willing to supply Germany with gas via the remaining branch of the Nord Stream 2 pipeline. In February, Russian President Vladimir Putin said that it would literally take a week to put it into operation.