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True words. But those are two different kinds of diversification. Germany is highly diversified in terms of what it produces and exports, which is what the Atlas of Economic Complexity is all about. My point refers to how economic growth is generated. Germany relies heavily on external demand, meaning exports drive a large share of growth while domestic consumption plays a comparatively smaller role. So the economy is diversified in its industrial structure, but less diversified in its demand structure.
Oh okay, got it! Which kinds of policies aim to diversify a country's demand structure? Like, how would that work?
The goal should not be to reduce exports, but to make growth less dependent on them. If you want to diversify demand, you would aim to strengthen domestic demand components. Meaning: higher household purchasing power, stronger private domestic investment, public infrastructure spending.
This needs a bit of context.
One reason Germany is where it is today is how wages developed in the early 2000s. In Germany, wages grew much more slowly than productivity, which kept labor costs low. This helped German companies compete internationally but also limited how much money many people had to spend domestically. At the same time, the Agenda 2010 (Set by former chancellor Gerhard Schröder, right before the Merkel era) reformed the labor market in favour of the employer's side. This expanded flexible and low-paid jobs. As a result, Germany became very competitive in exports while also developing a relatively large low-wage sector. Basically: Germany followed a "keep your own people poor, so that the factories they are working in have lower production costs and can export their stuff cheaper"-doctrine.
This could (maybe?) be reversed by increasing the role of domestic demand. That would mean stronger wage growth, lower taxes on lower and middle incomes, and stronger collective bargaining coverage. Governments should also expand public investment in infrastructure, housing, and education. But I also think that it will be very hard to reverse that trend.
What's your opinion on increasing domestic demand via careful import taxes where germany is highly dependent on external suppliers? And by careful I don't mean the hot mess trump administration is doing currently.
I'm not an expert on tariffs, and I am also not a big fan of them. Our economy is deeply intertwined with other economies, so tariffing will immediately raise production costs, leading to higher prices and less competitive exports. As a policy maker, I would be afraid that such a move would be the nail in the coffin for our economy.
Furthermore, being part of the EU single market means trade policy is largely set on EU level.
I agree with you except for the timeline. To my knowledge, Germany's firms and governments were export oriented since WWII. The current permanent reduction in demand from abroad (due to Chinese and American policy amongst others) is wholly novel and never happened before to Germany, from what I understand. One good thing is that the policies you mention have already been launched a few years ago, so the federal and state governments are adapting fast.
Let's hope that the current efforts turn out to be effective. And thank you for the lively exchange :)