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00:00About two hours outside Frankfurt lies the town of Schweinwurt.
00:04Dating back to 791, it's one of the oldest towns in Bavaria.
00:10Today, Schweinwurt is part of an auto industry that's at the center of Germany's modern industrial might.
00:16The auto industry is really the backbone of Germany.
00:20German car makers are among the most famous in the world.
00:23Mercedes, BMW, Volkswagen.
00:25But supporting the iconic brands is a vast network of parts manufacturers.
00:31One of them is the Joop Group, based near Schweinwurt.
00:34So we are in the main machining plant here of our headquarters.
00:37Its CEO is Martin Buchs.
00:39We are an automotive supplier, mainly, for maybe 80% of our business.
00:43We are supplying directly to the OEMs, the vehicle manufacturers,
00:47and supplying to the G1 suppliers that supply to the vehicle manufacturers,
00:53like Audi, Mercedes, Volkswagen, Porsche.
00:58So you can find our parts in all of these vehicles.
01:01But the German auto industry is facing stiff headwinds.
01:05Germany employed over 800,000 auto workers in 2018,
01:09a number that fell to just over 720,000 last year.
01:13And it isn't just auto manufacturing that's down.
01:16The German manufacturing sector overall employed around 5.5 million people
01:21at the end of September 2025.
01:23That's 2% less than a year earlier.
01:26China is really a challenge for the German automotive landscape at the moment.
01:30With the rise of the battery electric vehicle,
01:33which has gained now 17% market share here in Europe as well,
01:37access to battery technology is much more difficult for German OEMs.
01:42Access to raw material is much more difficult.
01:44And the Chinese OEMs, there has been a lot of new OEMs actually coming up.
01:51I think it's about 100 in China.
01:54So competition in China is very tough, actually.
01:57And the export of components and vehicles from Germany to China
02:00has decreased significantly.
02:02We're a family business.
02:04We have a long-term relationship with our employees.
02:07But programs from our customers were postponed.
02:10We had volume drops.
02:11So we had to react.
02:13Not only last year, but for the last couple of years, we had to adjust.
02:18We had to close two plants.
02:20We had to do some restructurings.
02:21And we had to lay off around about 500 people.
02:25So coming from 2,000 now to 1,500.
02:29But actually, we had to do it.
02:32If this sounds familiar, consider the United States at the turn of the century,
02:36specifically the year 2001.
02:38China joins the World Trade Organization.
02:41This is a very productive, fast, rapidly advancing country.
02:44And then barriers were removed.
02:46They became more competitive.
02:47David Autor is a professor of economics at MIT and co-director of the Labor Studies Program
02:52at the National Bureau of Economic Research.
02:55He and his co-authors popularized the term China shock in a 2016 paper on the impacts of the country's economic rise.
03:03And it really, especially for the United States, it displaced a lot of U.S. production.
03:07And this really did great, rapid damage to manufacturing-intensive locations that were making, you know, commodity furniture.
03:15They were making textiles and fabrics, clothing, toys, games, assembly, and so on.
03:20And so on the scale of U.S. employment, it wasn't that large.
03:24On the scale of the places that were most affected, it was quite devastating.
03:28China shock hit parts of the U.S. hard.
03:32Autor and his co-authors estimate that it accounted for nearly 60 percent of all U.S. manufacturing job losses between 2001 and 2019.
03:41I think that the U.S. did two things wrong.
03:43First, we just let it rip.
03:45There was no gradualism about it.
03:47And with labor markets, you really don't want to just rip the Band-Aid off
03:50because labor markets have a natural rate of adjustment of a couple percent per year
03:53because that's the rate at which people retire and new people enter.
03:55And people make those transitions by choosing new occupations at entry or retiring from old ones.
04:01They don't generally, you don't go mid-career from being a lawyer to being a manufacturing worker or vice versa.
04:06And so you don't want things to change that fast.
04:09You can handle change, but at a gradual rate.
04:12We didn't do anything to buffer that shock.
04:15The other is we had no real social policies in place to help people, to help communities and to help people adjust.
04:20The China shock dealt a blow to labor-intensive manufacturing like automobiles and textiles.
04:27Something similar may be playing out across Europe now as Chinese exports to Europe surge and prices of some goods collapse.
04:35French President Emmanuel Macron calls the trade imbalance, quote, unbearable.
04:40And Ursula von der Leyen of the European Commission said that the bloc's relationship with China has reached, quote, an inflection point.
04:46Europe has been one of those markets, and Chinese exports to Europe are growing very rapidly.
04:52And they threaten to displace a lot of European manufacturing that remains most visibly in the automotive sector and in Germany most of all.
05:00And this is going to, I think, you know, have similar risks for them in terms of hollowing out sectors really rapidly.
05:09Europe's so-called China shock seems to have been triggered in part by U.S. tariffs on Chinese goods, leading China to look for new markets.
05:19But, as Mark Twain said, history doesn't repeat itself.
05:23It often rhymes.
05:25And this time it may be different for Europe than it was for the U.S.
05:28There was this sense of, oh, well, all of the exports that were going to the U.S., because there has been a big reduction in Chinese imports coming into the U.S.,
05:36there's a feeling that those goods are just being diverted to Europe and elsewhere.
05:41And that we're not quite seeing that in the numbers.
05:43Stephanie Flanders runs Economics and Government for Bloomberg News and thinks the story is more complicated than China flooding Europe's markets.
05:51We are seeing that China has successfully offset the impact of U.S. tariffs by trading more with other countries.
05:58But it actually, if anything, seems to be different goods.
06:01And it seems to have been done through, you know, cutting the price of some of those different goods that they're used to selling to Europe.
06:06So, you know, as ever with trade numbers, it's just a bit complicated.
06:09But it is certainly true that China, on the face of it, has not been affected as much as you would have thought from the big reduction in exports going to the U.S.
06:19The U.S. trade deficit has been falling since Liberation Day, when President Trump announced sweeping tariffs on imports from many countries.
06:26But fewer Chinese exports to the U.S. did not mean China's exports overall went down.
06:33To the contrary, it now has a $1.2 trillion trade surplus, as its exports have actually increased.
06:40So the increase has been quite widely spread, David, because obviously the rest of the world as a market is bigger than the U.S.
06:45But, I mean, the headline numbers are you've seen about a four, just over a four percentage point reduction in Chinese exports to the U.S.
06:55But actually, overall, the exports last year increased by 3%.
07:00So they'd actually more than offset that swing in their exports to the U.S.
07:05And that's been spread over, I think, the place that's had the biggest increase is Africa, albeit from a small base.
07:10They've seen a lot more Chinese exports.
07:13And Europe, other places, have also seen more.
07:16But it's more on the order of sort of 1, 1.5% growth.
07:19Another difference in this China shock is the kind of goods China is exporting all over the world.
07:25If you're mostly just importing without exporting, you're just accumulating trade deficits,
07:29that means that it's not obvious where all those people are supposed to go.
07:33There's not a new set of activities opening up simultaneously.
07:37So I think it's quite a challenge.
07:39It was quite a challenge for the United States.
07:40We didn't manage it particularly well.
07:42And I think it's actually in many ways more challenging now than it was 20 years ago
07:46because China has moved so far up the value chain.
07:49When the China shock hit the United States in 2000, China was not exporting automobiles.
07:54But now they're a world-class auto supplier, and they're the best producer of electric vehicles in the world.
08:00There's a huge car industry in Europe, particularly in Germany, and they feel very threatened, and understandably so.
08:06But it will not just be in automotive, but it will also be in heavy industry like rail cars, shipping,
08:12but also be in lots of consumer goods.
08:15And so China is a formidable competitor, and not just in low-value-added, labor-intensive manufacturing,
08:20the way it was 20 years ago, but really all the high-tech sectors and all the consumer products
08:25that are kind of central to both what consumers purchase,
08:31but also what a lot of advanced economy manufacturers produce.
08:36Martin Book sees that happening already.
08:39To adapt, his company is turning to an area that isn't affected by China's reach
08:43and manufacturing dominance, defense.
08:46We do round about 80% of our revenue in automotive,
08:49but part of our strategy is to diversify into other areas.
08:54We are already doing some supplying to semiconductors, some to medical, to the general industry,
09:01but we would like to do more in defense and space, actually.
09:05That's part of our roadmap, a 10-year roadmap.
09:08And we are already supplying to the drone industry,
09:12which has become much more important now because of the Ukraine-Russian war.
09:17And we have some more plans for 26.
09:20That's going to be announced in the second half of this year.
09:23We have some plans to come forward, with our core competence, actually,
09:27which is mechanic and mechatronic products.
09:30Defense spending is government spending,
09:31which means it has to be paid for through taxation or borrowing.
09:33So you can't run your economy just by making defense goods for yourself,
09:39but that will use some of European industrial capacity
09:43and perhaps give focus to some of what they're doing and also technological advance.
09:46They also will face the same supply chain constraints in the United States
09:50as a lot of our military inputs come from China, including, for example, rare earth metals.
09:54The German case has been quite dramatic in these sectors
09:59that had previously been, you know, absolutely the heart of Germany's kind of self-identity
10:04as a manufacturing power, machine tools and cars.
10:08I think the only thing that's kind of offsetting that in terms,
10:11which is quite a big thing in terms of growth overall in Germany,
10:15is, of course, they're the ones who've had,
10:17they're increasing dramatically their defense spending
10:19and they're getting a fiscal impulse from that,
10:22which is not really present in the same way in other countries.
10:25So the country, we are seeing a lot of structural change hitting Germany at the same time,
10:32partly as a result of Donald Trump's trade policies with respect to China and other places,
10:38but also as a result of being in a more scary world.
10:42But where China makes life harder for some European manufacturers,
10:46it is lending a helping hand to central banks.
10:49Annoyingly for those sitting in central banks,
10:52the numbers, it's hard to tease out the data because it always tends to be a bit behind the curve.
10:57But we are seeing not so much the volume changing,
11:00I mean, the overall value of trade changing,
11:02but within that, maybe more goods at a lower price.
11:05And actually, the reduction in price may actually be helping to pull down inflation
11:10in some of these countries.
11:11Does that relieve some pressure on the European Central Bank?
11:14Well, I think it's one of those things.
11:15We've heard some Bank of England policymakers
11:17and European Central Bank policymakers talk about it.
11:22You know, there are obviously a period the European Central Bank has been on hold for a long time.
11:26They've been adjusting their inflation forecast.
11:29A lot of people, including Bloomberg, Bloomberg's economists,
11:32think that inflation is going to undershoot the eurozone's target this year
11:37and that they should potentially be looking to cut rates further.
11:40If we are witnessing a sort of second coming for China,
11:45it's coming in some very different ways,
11:47in the products it is making and in the regions it is exporting to,
11:51with different economic effects.
11:54But, as before, some particular sectors and geographic areas could be hit harder than others.
11:59Just ask Martin Bux.
12:02We are a family business.
12:03I'm living in an area.
12:05Of course, it's not easy to lay off people in an area where you live,
12:08where you meet people in shops every day.
12:11But, at the end of the day, it's about survival in the industry.
12:15And I think the case was quite clear that it was necessary to reduce our labor.
12:20But, at the end of the day, it's not easy to lay off people in the industry.
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