simply lead to higher transfers to the East, which on the one hand would
act as an obstacle to
further improvements in the West, and on the other hand act as a sweet poison that holds back
the East.
Analysis of manufacturing trade
Germany’s future competitiveness also hinges on the question of whether the country is strong
in market segments with a high growth potential. This can be analysed by looking at the relative
specialisation profile of Germany. Due to the small share of East German manufacturing, the
following statements reflect only West German companies. A priori, one would
assume that the
biggest potential for growth lies in the sectors producing high technology products and using
skilled labour. By contrast, due to its high wages, Germany is unlikely to be competitive in the
world market in low technology sectors and sectors using mainly unskilled labour as their input.
Figure 3.7 shows the relative technology content of Germany’s exports, compared to the
average content of EU exports, which is set to a value of 1. As one would expect,
Germany has
a strong comparative disadvantage in the low-technology sectors vis-à-vis other European
countries. This disadvantage is, however, not balanced by a comparative advantage in the high
technology sector, where Germany perhaps surprisingly shows a slight and slowly growing
comparative disadvantage. Germany’s export strengths compared with other EU countries lies
rather in the intermediate technology sector, such as vehicles and parts, chemicals, machine
tools and appliances.
The trend of loosing in the high technology sector is certainly worrisome for a high wage
country such as Germany. Other countries, such as France and the Netherlands appear much
better positioned, while the UK and Italy appear increasingly to lose out on high tech products.
However, it must be kept in mind that the term intermediate technology only applies to the
product itself. It does not necessarily apply to the production process.
For instance, car
production can involve extremely complex machinery and production processes. It is therefore
useful also to take a look at the predominant input factors. An analysis shows that Germany’s
exports are relatively capital intensive and use high skilled labour (Figure 3.8). By contrast,
goods that use low skill labour are underrepresented. Here too, France and the Netherlands
appear to have a superior profile insofar as their exports are concentrated in high skill labour,
while the UK and Italy show no comparative advantage in skilled labour products.
It is not possible to draw direct conclusions on the future competitiveness of German industry
from this simple snapshot. However, a priori one would assume that the best potential for
Germany to maintain a global market share would lie in the capital intensive high-skill high-
tech sectors, because only these sectors can afford the country’s high wage level. It is then a
potentially worrisome fact that Germany appears to be losing slightly its comparative advantage
in these areas compared to other European countries. The changes in Figures 3.7 and 3.8 maybe
small but could point to a potential long-run decline of the German trade position. This is
compounded by the fact that the analysis does not include the service sector, where Germany is
particularly weak.
In addition, by normalising the figures on an EU average, the data neglect the
fact that Europe as a whole is losing high tech market share, notably to the United States.