Germany Emerges from Economic Realpolitik

Peter S. Rashish

Vice President; Director, Geoeconomics Program

Peter S. Rashish, who counts over 30 years of experience counseling corporations, think tanks, foundations, and international organizations on transatlantic trade and economic strategy, is Vice President and Director of the Geoeconomics Program at AICGS. He also writes The Wider Atlantic blog.

Mr. Rashish has served as Vice President for Europe and Eurasia at the U.S. Chamber of Commerce, where he spearheaded the Chamber’s advocacy ahead of the launch of the Transatlantic Trade and Investment Partnership. Previously, Mr. Rashish was a Senior Advisor for Europe at McLarty Associates, Executive Vice President of the European Institute, and a staff member and consultant at the International Energy Agency, the World Bank, UNCTAD, the Atlantic Council, the Bertelsmann Foundation, and the German Marshall Fund.

Mr. Rashish has testified before the House Financial Services Subcommittee on International Monetary Policy and Trade and the House Foreign Affairs Subcommittee on Europe and Eurasia and has advised three U.S. presidential campaigns. He has been a featured speaker at the Munich Security Conference, the Aspen Ideas Festival, and the Salzburg Global Seminar and is a member of the Board of Directors of the Jean Monnet Institute in Paris and a Senior Advisor to the European Policy Centre in Brussels. His commentaries have been published in The New York Times, the Financial Times, The Wall Street Journal, Foreign Policy, and The National Interest, and he has appeared on PBS, CNBC, CNN, and NPR.

He earned a BA from Harvard College and an MPhil in international relations from Oxford University. He speaks French, German, Italian, and Spanish.

The 178-page coalition agreement announced last week by Germany’s next government comprised of the Social Democrats (SPD), Greens, and Free Democrats (FDP) and called “Alliance for Freedom, Justice, and Sustainability” is a declaration of intentions: only time will tell how they are translated into policy.

Yet narratives count, since other countries can be expected to take account of the new coalition’s ambitions as they formulate their own policies. And on matters related to the global economy, a noticeable shift can be detected. The dominant post-Cold War thinking in Germany that has seen engagement as the default position yields to a more nuanced view placing greater emphasis on building alliances and creating leverage based on common values and security interests.

This change in outlook is most apparent in how the three-party coalition addresses China. During outgoing Chancellor Angela Merkel’s four terms in office, Berlin’s approach to Beijing was a somewhat unsteady balancing act. One part of the policy was motivated by the pursuit of Germany’s own commercial interests through greater trade and investment. Merkel seemed to accept the country’s role as an export superpower as a given and did little to make the economy more domestically driven or reorient it toward other trading partners. But this commercial Realpolitik was often framed in an idealist vision of “Wandel durch Handel,” (“change through trade”) relying on economic interdependence to bring about reforms in China’s state-dominated economy.

These two strands of German policy came together in the Comprehensive Agreement on Investment (CAI) the European Union and China signed at the end of December 2020 and that is now on ice owing to Chinese retaliatory sanctions against EU parliamentarians and civil society. The CAI was widely criticized for being pursued in haste and ahead of the opportunity to build a joint strategy with the incoming Biden White House.

In a striking departure from this past approach in Germany, the coalition agreement not only states that ratification of the CAI “cannot take place at the moment,” but also that “we strive for close transatlantic coordination in China policy and seek cooperation with like-minded countries in order to reduce strategic dependencies.” Although the coalition partners do not explicitly call for reduced economic dependencies, they do want to “increase the strategic sovereignty of the European Union by having values-based foreign, security, development, and trade policies that reflect common European interests.”

That language suggests the three parties are aware there will have to be trade-offs between pursuing commercial advantages and advancing broader goals of Germany’s foreign economic policy. So does the support for a more coercive trade policy through “the creation and further development of autonomous trade policy instruments against unfair trade practices at the European level.”

The coalition agreement also highlights the importance of the transatlantic economic relationship for the global trading system. “Together with the U.S.,” it declares, “we want to promote multilateral trade, reform of the WTO, the establishment of ecological and social standards, prosperity and the dynamism of sustainable world trade.” That the trade-climate link should be central to this cooperation is further underlined when the three parties state that “Europe should seize the opportunity to enter into an intensive exchange with the new U.S. administration to promote trade and investment with high environmental and social standards in order to be able to set global standards with the transatlantic economic area.”

This outlook augurs well for a future alignment of U.S. and EU policies on carbon border adjustment as part of the two sides’ efforts to combat climate change—an issue that along with China and the digital economy is likely to top the transatlantic economic agenda in the coming years.