Both Corona and the crisis in Ukraine have cruelly shown how vulnerable our economy is. There is now also the possibility of a trade war between different blocs throughout the globe.

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The conflict in Ukraine and the fallout from it are unmistakably altering people's perceptions of Germany's and Europe's economic reliance, as well as the vulnerabilities associated with those dependencies. Even before the war, European industry was facing challenges such as a shortage of raw materials, global overcapacity, dumping, and a new degree of protectionism that was developing in severity. Since the beginning of the corona epidemic, there have also been frequent interruptions in global supply chains, including the most recent major supply challenges as a consequence of the Chinese lockdown policy. These supply chain disruptions have been occurring on a regular basis.

The Corona incident has already brought to light the flaws that are present in a just-in-time manufacturing method that is extremely effective but prone to failure. The current geopolitical climate has further accentuated the trade-offs that need to be made between cost efficiency and resilience. Businesses now have the difficult task of bolstering the resiliency of their supply chains and, in certain instances, reevaluating their approaches to international trade. At the same time, German and European politics are confronted with the challenge of finding an appropriate balance between the continuing advantages of open trade relations and the need to reduce strategic dependencies and strengthen supply security. This is a challenge that is shared by European politics as well.

However, it is abundantly obvious that the efficiency-focused, global orientation of supply chains has reached its maximum potential and has passed its zenith. Fair trade holds the possibility of additional advances in wealth for the great majority of individuals engaged. There is a wide variety of approaches that may be used by entrepreneurs in order to reorganise supply connections. As part of their efforts to diversify their business, several corporations are searching for new suppliers in other geographic areas. On the other hand, the strategy of achieving greater supply security through greater geographical proximity is associated with the buzzwords "re-shoring," which refers to the relocation of production to the domestic region, and "near-shoring," which refers to production in the respective continental region.

In light of the impending bloc confrontation in the global trading system, politicians like Janet Yellen, the Secretary of the United States Treasury, are also in favour of increased friend-shoring, which restricts trade in strategically important intermediate goods in particular to dependable trading partners. Friend-shoring is a strategy that was developed in response to the impending bloc confrontation. On the whole, the production structures are likely going to become a lot more regional. The political framework circumstances need to be structured in such a manner that the rearrangement of the industrial value and supply chains is also based on social and ecological standards. This can only be accomplished if the conditions are set properly. Along the whole of the supply chain and in as many areas of the globe as is physically practicable, there has to be an emphasis placed on ensuring that supply security, as well as excellent working conditions and ecological sustainability, are met.

In recent years, the European Union has increased its efforts to ensure equal and fair competitive conditions and has sought to expand its range of trade protection instruments. For instance, the European Union has strengthened its investment screening, implemented the Carbon Border Adjustment Mechanism (CBAM) as a CO2 border adjustment system, and developed an instrument for third-country subsidies and international procurement. All of these steps were taken in an effort to ensure that all markets are treated in an equal and fair manner. In light of the present circumstances, the use of trade defence tools and the limits on investment activity from other nations may now take on an even greater level of significance. As a consequence of this, the problem that arises is to further hone these tools as required without contributing to an upward cycle of protectionism.

In addition, the European Union (EU) has the issue of shaping its economic policy in the future in a far more active manner, going beyond the simple eradication of competition-distorting distortions. In the new geostrategic rivalry, Europe does not have to manufacture everything inside its own borders; nonetheless, it must not fall behind when it comes to securing or moving vital sectors in order to maintain its competitive edge. In a world that is becoming more green, digital, and geopolitically unstable, these vital sectors need to be recognised in a transparent manner and pushed so that strategic sovereignty can be maintained.

Industrial policy has to be actively implemented alongside trade policy, and it needs to take on a far more important role than it has in the past. The European Union (EU) has recently made some efforts in this area, such as with strategic funding projects for the development of health, hydrogen, cloud computing, and batteries; or with the REPowerEU project, which is trying to end dependence on Russian fossil fuels before the year 2030 in response to Russia's invasion of Ukraine. Both of these projects are examples of recent EU efforts. Nevertheless, industrial strategy in Europe has, up to this point, been highly uncoordinated and primarily under the sway of individual member states.

Not only will it be necessary to address the expansion of European sovereignty, but it will also be necessary to do so in respect to economic ties with China. While the conflict in Ukraine is helping to restore transatlantic cooperation, rivalry and antagonism with China are regaining their visibility. Dependence on China is often seen very differently politically in the member states of the EU, and these evaluations are also sometimes extremely different from one another.

The trade, investment, and innovation relationships between Germany and China are very vital to both countries' economies (and vice versa). The Chinese market is the most important sales market in the world for a number of well-known enterprises. On the other hand, this indicates that these businesses are at an increased danger of being embroiled in political problems, such as those pertaining to Taiwan. The problem of violating workers' and people's rights in China is also becoming an increasingly pressing concern. 

The China policy of Germany and the rest of Europe has to create a new equilibrium in this regard in order to maintain the benefits of economic interchange to the greatest extent feasible while minimising the possibility of putting oneself in a position of excessive vulnerability. One thing is abundantly clear: unlike the situation in Russia, an immediate and extensive withdrawal from the economy of China is today unimaginable. This is in contrast to the situation in Russia. Dependencies, on the other hand, need to be reviewed in a realistic manner and, if required, eliminated.

The European Union (EU) is working toward greater independence from China in terms of raw materials, especially rare earths, which are vital for the future viability of European industry. This goal is being pursued with the help of the Raw Materials Act. In principle, Germany and the other member states of the EU should carry out their future China policy in close coordination with the European partners. A more robust transatlantic coordination appears to be desirable in this context as well, provided that neither party gives up its own, potentially divergent interests right from the off.

In light of the fact that the World Trade Organization is likely to become ineffective in the not-too-distant future, the issue of whether or not there will be any future meaningful international collaboration that goes beyond dealing with China emerges. Do we now require additional partnerships on the national level, such as for the supply of energy or raw materials, or do we need to redouble our efforts to bring about the conclusion of EU trade agreements, such as the planned restart of negotiations with India or the more advanced negotiations with Mexico, Indonesia, Australia, New Zealand, and Mercosur?

When it comes to the process of determining how global economic relations will be shaped, multilateral accords that have been openly and honestly negotiated are unquestionably the best option. Because they exclude third parties and provide an increasingly complicated international regulatory environment, bilateral trade agreements, such as the one that was recently reached between the EU and Japan, are only the second-best choice. On the other hand, in the event that multilateral attempts and solutions are thwarted over the course of a longer period of time, there should be a return to a more aggressive discussion of support for bilateral accords.

If they are negotiated in a democratically transparent manner and contain minimum standards for social and ecological rules and improve these rules compared to the status quo, then bilateral trade agreements can also play a positive role in a world trading system. Unfortunately, comprehensive, functioning multilateral agreements are probably not going to be realistic in the foreseeable future. However, bilateral trade agreements can play a positive role in this system.

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