Economic Security - A German perspective

Clemens von GOETZE:
Economic security has become increasingly critical in light of recent global challenges including, but not limited to the COVID-19 pandemic, Russia's war of aggression in Ukraine, and rising geopolitical tensions in regions such as the Indo-Pacific and the Middle East. Japan and Germany, as democratic nations committed to upholding a rules-based international order, recognize the need for robust security strategies to safeguard their economies, which are heavily reliant on international trade.

Germany’s economic security strategy is built on three pillars, which were introduced in 2023: its national security strategy, its China strategy, and the EU’s economic security strategy. These pillars emphasize the importance of reducing economic dependencies, particularly in critical sectors such as infrastructure, technology, and energy. Germany’s first-ever national security strategy identifies economic security as essential to the country's overall security. It highlights the importance of cooperation among federal states, enterprises, and international partners to counter economic sabotage and espionage.

The relationship between Germany and China is complex, marked by significant economic interdependence and strategic competition. China has been Germany’s largest trading partner for eight consecutive years, with a bilateral trade volume exceeding 250 billion euros in 2023. However, this economic relationship poses risks, particularly regarding dependency and technology transfer. Germany's China strategy aims to balance economic cooperation with measures to protect critical sectors from undue influence. The country has expanded its foreign direct investment (FDI) screening processes to include critical sectors such as high-tech, energy, and communications. This move aims to prevent unwanted foreign influence, particularly from China, and to safeguard key technologies.

Energy security has also become a focal point, especially in the wake of Russia’s invasion of Ukraine. Germany's reliance on Russian gas exposed significant vulnerabilities, prompting efforts to diversify energy sources and routes. The country is actively participating in the creation of a European Energy Union and supporting initiatives to integrate energy markets across the EU. Diversification efforts include importing LNG from the U.S. and exploring alternative gas supplies through the Southern Gas Corridor from Azerbaijan. However, Germany’s energy transition also faces challenges, as it remains dependent on Chinese imports for renewable energy technologies like photovoltaic panels.

Cybersecurity is another crucial aspect of Germany's economic security policy. As the economy becomes increasingly digitized, the risks associated with cyberattacks have grown. Germany is collaborating with European partners to strengthen cyber resilience and develop joint responses to cyber incidents. Concerns about Chinese investments in critical infrastructure, such as telecommunications and energy networks, have led to tighter regulations and increased scrutiny of foreign acquisitions.

Supply chain resilience, especially for critical goods like medical supplies and semiconductors, is a key concern. The COVID-19 pandemic exposed vulnerabilities in global supply chains, prompting Germany and the EU to enhance transparency, reduce dependency on single suppliers, and build strategic reserves. China's recent restrictions on germanium and gallium exports underscore the risks of dependency on critical materials from a single source. Germany is also focused on safeguarding research and innovation, particularly in dual-use technologies, and promoting intellectual property rights.

Germany's approach to economic security is deeply integrated within the EU framework. Initiatives like the Critical Raw Materials Act and the European Chips Act aim to reduce dependencies and enhance the EU's economic resilience. Additionally, Germany and Japan, with their strong industrial bases and shared democratic values, have significant potential for cooperation in areas such as technology, supply chain resilience, energy transition, and cybersecurity, offering opportunities to address global challenges together.