Trade barriers all over the world are increasingly causing problems for German companies operating internationally. This is the result of the current survey "Going International" by the German Chamber of Commerce and Industry (DIHK), in which 2,400 companies participated.
According to the survey, 56 percent of German companies doing businessabroad are confronted with new hurdles – the highest figure since the first "Going International" survey 18 years ago. "The year before, it was already 54 percent. We clearly see a sad trend towards more protectionism here," says Volker Treier, DIHK. "This hits the globally active German economy particularly hard and prevents an export upswing in the current year."
Since Donald Trump, as President of the United States, instigated an increasingly protectionist foreign trade policy, the survey recorded a steady increase in barriers for international business. The only exception was 2021, the year of the Corona crisis. Before 2017, an average of 35 percent of German companies had registered an increase in trade barriers. This was still manageable for most companies. Since then, the figures have been close to 50 percent or even higher.
The hurdles are quite diverse: almost half of the companies (47 percent) name local certification requirements as key barriers in foreign business. Some countries require additional audits of foreign companies. In addition, for 42 percent of the companies, increased security requirements add costs and time to international business. One fifth (19 percent) of the companies also see themselves discriminated against by local content regulations, i.e. by requirements that dictate production in one's own country and put foreign suppliers at a disadvantage, such as the Inflation Reduction Act in the USA.
More than every second business feels the sanctions
The sanctions against Russia and Belarus by the EU and other states as well as the counter-sanctions in connection with the Russian war in Ukraine are also causing challenges for the companies affected. More than one in two companies (57 percent) say they have experienced an additional hurdle in their international business in the past year, especially due to sanctions – primarily in business with Russia. In 2022, this figure had still been at 24 percent.
"Our survey confirms the new reality we have been dealing with since the war of aggression," Volker Treier comments on the development. "German companies are facing increasing protectionism, new and tough sanctions regimes with high compliance costs, and an increasingly fragmented world economy. Specifically, this means that access to foreign markets is becoming an ever greater challenge for them."
Additional hurdle supply chain due diligence law
In addition to the trade hurdles in the foreign markets, bureaucratic regulations in Germany are increasingly complicating the international business of German companies. For example, the Supply Chain Compliance Obligations Act (Lieferkettensorgfaltspflichtengesetz – LkSG), which came into force on 1 January 2023, acts as a major additional trade barrier, says Treier: "It is particularly absurd when even companies that should not be affected by the law see themselves forced to proactively withdraw from certain markets. This has fatal consequences at a time when, due to the stronger decoupling of the world economy, it is politically and economically important for companies to diversify their markets, i.e. to spread their risks more widely."
In the survey, 7 percent of the companies with up to 3,000 employees say they will have to withdraw from markets due to the new law in order to minimise human rights and environmental risks. In addition, one in three companies fear losing suppliers, even though they are not covered by the law as it stands.
Business prospects best in the USA
The persistent barriers are having a negative impact on the global business of German companies. Just under one in four companies (24 percent) expects its foreign business to deteriorate in the current year, only 15 percent expect an improvement. Looking at countries and regions, the USA still scores best, with 34 percent of respondents expecting better business here in 2023. In contrast, only 3 percent of the companies in Russia, 8 percent in Great Britain and 17 percent in the Asia-Pacific region (without China) (21 percent in China) report optimistic business prospects.
In the DIHK business survey at the beginning of 2023, companies' export expectations had already remained subdued. "The DIHK therefore expects real export growth of 2.5 percent in 2023, which is one percentage point lower than the average of the 2010s," Volker Treier classifies the survey results.
In order to counteract the negative trend and adapt to the changed geopolitical conditions, every second company (51 percent) is planning to expand to new markets. The focus here is primarily on the EU Single Market (Euro Zone 74 percent, other EU with Switzerland and Norway 47 percent). In order to reduce its dependence on China, for example, or to diversify its supply chains, just under one in three companies (29 percent) is focusing on the Asia-Pacific region. But the markets of North America (43 percent) and especially the USA (35 percent) are also becoming increasingly attractive.
Reforming and strengthening the WTO
"The USA's Inflation Reduction Act is already beginning to have an effect," warns the. "Prospects for the expansion and development of climate-friendly technologies are also encouraging German companies to do more US business and invest in the States. Subsidies tied to WTO-inconsistent localisation obligations, however, are harmful to the global trading system." Referring to the trade policy demands raised by companies in the survey, Treier adds, "Even if multilateralism is not booming at the moment: Now is the time to provide planning security for companies with free trade agreements. We need a new agenda that also redefines and strengthens the WTO's tasks."
The complete survey results are available for download here: