Tom Fairless
Appearances
The Journal.
Germany's Economy Is Broken. There's No Plan B.
It's got this beautiful old town, this pristine white castle. When I was there, there was an ice rink, a seasonal ice rink in front of the castle. There were Christmas markets all around town. It's a prosperous town.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
It's a funny thing about a Porsche. There's the moment you know. This is Audi.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
So Audi has about 40,000 employees in town and a lot of the rest are car suppliers or providing services that cater to those, to the Audi workers, hotels, restaurants, that kind of thing. So it's really centered on this one company.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
It was a big chunk of their profits. It was the fast-growing market.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
China has become a much more problematic trading partner. It's moved from being this enormous source of demand that was by snapping up German cars and German machinery for its factories. Now it doesn't need it. It doesn't really need German goods as much. It can produce all that itself.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
So China has figured out how to produce cars at high quality and very cheaply. And it's essentially flooding global markets with these cars and other products too. You know, the German manufacturers all around the world are facing low-cost Chinese competition.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
With the war in Ukraine, the gas has been cut off from Russia. So it's really causing problems and distorting the European market. And this Texas-based chemicals manufacturer who has operations in Germany told me he can pay 10 times or more as much for energy in Germany as he pays in Texas. So that's a real problem for the industry.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
Yeah, exactly. I think the basic industries like chemicals and metals and things, they take up a large amount of energy. And then all that goes into the final cost of the car. So it's making them seriously less competitive because of these high energy costs.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
I spoke to, for instance, a hotel owner whose revenues are down about 10% since 2019. She used to get a stream of business guests coming to Audi, and that's dried up. And there aren't the big conventions in town, the auto conventions they used to have. And I spoke to a carpenter.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
Many of his clients are working at Audi, and he sees that the work is starting to dry up, especially for sort of less experienced carpenters.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
So I spoke to the mayor and he is in a bit of a bind because Audi used to provide quite a big chunk of his budget. That has dried up completely, I understand, for over a year. So he suddenly has a big hole in his budget and he's having to start making cuts. At the moment, they're quite small, but he's increasing prices for museums and car parking spaces and thinking about deeper cuts.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
And it seems like that money has gone for the foreseeable future and now they're facing tough decisions. It was a boom town for a long time, and suddenly it's run into a wall, and it's not sure what the next move is going to be. And when you talk to the residents and the businesses, they're all talking about Detroit.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
That's the sort of fear in their minds that it's going to become the next Detroit. At the moment, it couldn't really be more different. It's this sort of still prosperous town, but you get a sense that things are starting to crack.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
The U.S. is incredibly important to German manufacturers. And so any tariffs that President Trump would impose on Germany would be a problem. And that's another concern that you hear among local businesses, that President Trump's tariffs could bring a new wave of crisis into these regions.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
The business model that Germany has used to get rich since World War II, it was based on exporting to the world, and that model has broken down. Since 2018, there's really been a steady downward trend in manufacturing. And the economy now, on the back of that, has contracted for two years in a row. And no one really seems to know what to do next.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
Yeah, exactly. So yeah, you see the unemployment rate creeping up. You see business insolvencies arising. The retail sales are poor. The Christmas season, I think, was quite poor. And Germans are saving more and more of their income. I think they're nervous about what's ahead. They're fearful about the future. They're fearful about losing their jobs.
The Journal.
Germany's Economy Is Broken. There's No Plan B.
It's central to Europe's economy and especially to Europe's big manufacturing sector. And it's deeply intertwined with other countries like Italy and Eastern European countries like the Czech Republic. So if Germany sneezes, Europe catches a cold.
WSJ What’s News
President Trump Announces 10% Across-the-Board Tariff on All Imports
There have been some high profile announcements by some big multinational firms, Apple, Siemens in Germany, various chip manufacturers like TSMC from Taiwan. These kind of announcements probably take a long time to plan out and probably aren't a direct response to the tariffs. But you do see from questionnaires that some businesses are steering in that direction towards more US investment.
WSJ What’s News
President Trump Announces 10% Across-the-Board Tariff on All Imports
The German Association of Engineering Firms conducted a survey of its members recently, and they found out that tariffs were one reason that most firms were interested in investing in the US. A lot of companies will wait for the smoke to clear. It's very difficult to make big investments until things have settled down.
WSJ What’s News
President Trump Announces 10% Across-the-Board Tariff on All Imports
When companies are thinking where to place a new factory, it tilts them towards the U.S., undoubtedly, and away from places like Mexico and Canada. So that trend is there, and going forward, it will steer ever more investment into the U.S. But these are big, complicated decisions. Its entire complex supply chain is built up over decades, and it'll take time.
WSJ What’s News
President Trump Announces 10% Across-the-Board Tariff on All Imports
That's right. The US effectively established the current globalized trading system. And the US was much more aggressive than other countries at doing that and trying to open up global markets. And so this is a real historical development where the US is turning its back on all those decades of advocating free and open trade and pressuring trading partners to do that. Can it work? Yeah.
WSJ What’s News
President Trump Announces 10% Across-the-Board Tariff on All Imports
President Trump and his allies would point to maybe the early 20th century when the US economy was growing very strongly with high tariffs. It depends very much what other countries do. If other countries retaliate very strongly... then you could get a sort of tit-for-tat trade wars breaking out as we had in the 30s, which sort of aggravated the Great Depression.
WSJ What’s News
President Trump Announces 10% Across-the-Board Tariff on All Imports
So, yeah, it's a high-risk strategy.
WSJ What’s News
President Trump Announces 10% Across-the-Board Tariff on All Imports
Thank you very much. Thanks, Alex.