Economists Support EU Tariffs on Russian Energy Imports
Russian threats to cut off the supply of fossil fuels and drastic lockdowns in many major cities in China have highlighted Germany’s dependency on non-European imports. But doubts as to the reliability of these two trading partners predate Russia’s invasion of Ukraine and China’s strict zero-Covid policy. Whether trade with autocratic states should be limited has been a topic of discussion for quite some time now, not least due to human rights violations along supply chains. The 39th ifo and FAZ Economists Panel focuses on global supply chains and trade with autocratic states. The survey was conducted from May 24, 2022, to May 31, 2022. A total of 158 economists took part in the survey.
Divergent Assessments of Germany’s Dependency on the Global Economy
One-third of those participating in the 39th Economists Panel believe that Germany is too dependent on the global economy. Germany, they argue, is too focused on exports and does not have enough international diversification in its supply chains. What is more, when it comes to trade policy, geopolitical risks have not been sufficiently considered, they say. By contrast, almost 60 percent of those surveyed rate Germany’s dependency on the global economy as not too high, citing the positive wealth effects of international trade. Furthermore, they argue that global networking increases independence, and that Germany’s supply chains are already highly diversified. In their view, Germany is too heavily dependent on particular countries but not the global economy as such. Another 9 percent say they “don’t know.”
International Diversification to Increase Supply Chain Resilience Has the Highest Approval Rating
Among the participating economists, international diversification is the single most popular measure to increase supply chain resilience (88 percent). Coming in second and third are efforts to increase procurement from other EU countries (nearshoring), at 64 percent, and inventory scale-ups, a measure supported by just under half of the participating economists. Just over one-third support actions to improve the monitoring of supply chains. Efforts to increase domestic procurement (reshoring) and the reintegration of outsourced processes back into the company (insourcing) are each backed by a good quarter of those surveyed. Also mentioned as a measure to increase supply chain resilience was “second sourcing.” Two economists do not support any of the measures. None answered “don’t know.” This question permitted multiple responses.
The German Government Should Be Reluctant to Take Steps to Increase Germany’s Supply Chain Resilience When It Comes to Economic Policy
When it comes to economic policy, many participating economists demand that the German government be reluctant to take measures to increase Germany’s supply chain resilience. They consider it the responsibility of companies to pick their customers and their sources of supply. Cases where government intervention is deemed necessary mainly concern the energy market. Many economists see it as the government’s responsibility to ensure security of supply when it comes to energy sources and public health products. Several participants support systematic carbon pricing for the production and transport of goods and services. Another demand is that the EU sign further trade agreements and reduce non-tariff barriers to incentivize companies to do more to diversify their supply chains and customers. There are also calls for stronger government efforts to increase stockpiling at the European level in order to boost Germany’s supply chain resilience. Figure 3 illustrates the free-text responses. Words that appear larger in the figure were mentioned more frequently.
The Supply Chain Due Diligence Act Will Make International Business Harder for the German Companies Affected, Say Economists
Germany’s Supply Chain Due Diligence Act (LkSG) will take effect on January 1, 2023. Companies with over 3,000 employees (1,000 employees as of 2024) will be obligated to analyze their supply chains with regard to potential violations of human rights and environmental law and to install a reporting system for such violations. Almost 80 percent of the participating economists believe that the LkSG will make international business harder for the German companies affected. They reason that companies will face increasing bureaucracy, rising transaction costs, and difficulties in obtaining the information required under this law. Furthermore, there is a risk that the law might compel companies to obtain their intermediate products from a smaller number of suppliers. Only 15 percent believe that the law will not make international business harder for the companies affected. In their view, companies’ reputational gains will outweigh additional costs; they also point out that it is not yet clear how strictly the law will be enforced. Another 7 percent say they “don’t know.”
Majority Support for Restrictions on Trade Relationships with Autocratic States
Over half of the participants agree that Germany’s international economic policy should limit trade relationships with autocratic states. They warn that trade with autocratic states entails great geopolitical risks, adding that such states often prove to be unreliable trading partners. Germany, they say, has a responsibility to safeguard human rights beyond its borders. Some participants distinguish between trade and dependency: trade with autocratic states should remain possible; Germany should, however, not become dependent on those states. Just over one-third of participants do not want Germany’s international economic policy to limit trade relationships with autocratic states. They say that Germany should interfere in other countries’ internal affairs only in exceptional circumstances if at all. Furthermore, they argue that restrictions on trade relationships hit the people living in autocratic states harder than they do the autocrats themselves: without trade, autocratic states might become even more isolated and dangerous. Another 7 percent say they “don’t know.”
Support for Tariffs on Russian Energy Imports
Over two-thirds of participants are of the opinion that EU tariffs on imports of Russian energy are an effective measure for reducing payments to Russia while also minimizing the impact on Europe’s energy supply. They consider tariffs to be better than embargos and more effective than quantitative restrictions. Tariffs, they argue, would force Russia to lower its export prices for fossil fuels. And they expect higher energy prices for customers in Europe to simultaneously lead to an optimized distribution of scarce resources via the free market. Just under 25 percent of participants are skeptical of EU tariffs on Russian energy imports, citing the danger of an additional increase in customer prices, which are already high. It is their view that Russia has the upper hand in negotiations, especially when it comes to gas, meaning that the tariffs would mostly be borne by the EU due to demand inelasticity. Some economists reject tariffs as insufficient and instead demand a complete halt on payments to Russia. Another 7 percent say they “don’t know.”
Ökonominnen und Ökonomen für Einschränkung des Handels mit Autokratien
ifo Institut, München, 2022
ifo Schnelldienst, 2022, 75, Nr. 07, 31-35
