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United States-Germany International Trade

By Christine Parizo

Germany is the United States' largest European trading partner and the sixth-largest market for U.S. exports.1 Germany's economy grew strongly in 2017, driven by investment, consumption, and international trade. In October 2017, the German government raised its official GDP forecast for 2017 to 2 percent (from a 1.5 percent forecast in April), approximately matching the 1.97 percent forecast by the Organization for Economic Co-operation and Development (OECD).2,3 Germany's GDP of $3.466 trillion comprises 5.59 percent of the world's economy.

According to the OECD, Germany's economic growth will continue to remain solid. A June 2017 OECD economic forecast says high demand for German goods from Asia and the U.S. is currently driving the country's growth, but is expected to slow down as an effect of depreciation of the euro and slowing import growth in China. Domestic demand is predicted to take over as the main source of growth in Germany, with high household demand and increased government spending. According to the OECD forecast, because Brexit concerns may affect the euro, some international trade businesses are considering shifting investments from the United Kingdom to Germany, potentially making it a more attractive trading market.4

 

Exporting to Germany

 

The U.S. exported a total of $49.36 billion in goods to Germany in 2016, compared to $49.95 billion in 2015, according to the U.S. Census Bureau.5 Despite the slight, the U.S. Department of Commerce expects Germany to remain attractive to numerous industries for international trade due to its central location in the EU, world-class infrastructure, high levels of productivity, and a highly skilled labor force.6 The top three categories of U.S. exports to Germany in 2016 were passenger cars; civilian aircraft, engines, and parts; and pharmaceutical preparations.7

 

As a member of the EU, Germany's official currency is the euro. The U.S. dollar-euro (USD-EUR) exchange rate has traded within a two percentage point range from August 2016 to August 2017, with the dollar beginning to strengthen versus the euro later in 2017.8 According to data from The World Bank, Germany's inflation crept up from 0.234 percent in 2015 to 0.483 percent in 2016.9 The impact of the German marketplace extends beyond the country itself, given that the country hosts some of the world's largest international trade show events, including MEDICA, the Hannover Fair, CeBIT, Automechanika, and the ITB Tourism Show.10

 

Germany's relatively low unemployment rate, coupled with a strong per-capita income, makes German consumers a good target for U.S. marketing. Its total population was estimated to be 82.8 million in January 2017, a 0.8 percent increase from the previous year.11 Germany's per capita GDP was $45,551.51 in 2016, an all-time high and up from $45,253 in 2015.12 U.S. Foreign Direct Investment (FDI) in Germany was $107.71 billion in 2016.13

 

Germany is the largest consumer market in Europe in terms of population size and purchasing power. German consumers are affluent but are as receptive to discount retailers as they are established brand names.14 More Germans are choosing to research products online prior to purchasing at a store, according to reports.15 In 2016, Internet users comprised 89.6 percent of the population.16

 

The U.S. is Germany's fourth-largest import source, after China, the Netherlands, and France.17 One challenge that U.S. companies face when exporting to Germany is that many of the products they excel at offering, such as agricultural products, machinery and equipment, and financial services, are also provided by German companies.18 However, Germany is the third-largest market for U.S. auto exports, totaling $1.48 billion in just the first quarter of 2017.19

 

Importing from Germany

 

The U.S. was Germany's biggest export destination in 2016, totaling approximately $118 billion.20 Automobiles are the top import to the U.S., comprising 20 percent of all goods imported from Germany. Packaged medicaments (9.3 percent) and vehicle parts (4.9 percent) were second and third.21 According to published reports, imports to the U.S. from Germany rose 8 percent on the year in the first quarter of 2017.22

 

 

Setting up for International Trade in Germany

 

Because Germany is a member of the European Union, the U.S. and Germany are partners in the Transatlantic Trade and Investment Partnership (T-TIP) negotiations. This agreement is designed to fortify the trade relationship between the EU and the U.S.23 This is something to keep in mind as companies set up for trade in Germany.

 

Success for international businesses in Germany often depends on the types of products being offered; the most successful market entrants offer innovative, quality products with modern styling. U.S. companies should also consider the diversity within the country, as desires and interests tend to differ from state to state, according to the U.S. Department of Commerce's export.gov site.24 Before international traders do business in Germany, they must register in the public Commercial Register and/or the local trade office. The Commercial Register is available to the public and supplies information about relationships between commercial companies and merchants.25

 

Any company wishing to use distribution, franchising, and agency agreements will need to make sure all agreements are in accord with applicable member state national laws.26 Additionally, Germany's bureaucratic procedures and regulations can create delays and obstacles for U.S. exporters.27

 

The World Bank's (WB's) Ease of Doing Business Index rates Germany at 17th out of 190 countries. Some of the bigger challenges cited by the WB include starting a business (where Germany ranked 114), registering property (79), and protecting minority investors (53). Paying taxes ranked at 48. Germany scores better at resolving insolvency (3), getting electricity (5), and dealing with construction permits (12).28

 

Overall, Germany ranks 11th out of 130 countries in the World Economic Forum's (WEF's) Human Capital Index.29 It has a labor force participation rate of 60.3 percent. The tertiary-educated population, those that have completed the highest level of education including advanced degrees in medicine, numbers 15.4 million. Germany ranks 9th out of 136 countries in the WEF's Global Enabling Trade Index. This is lower than the Netherlands, Sweden, Austria, and the U.K., with foreign market access being its main weakness.30

 

Cultural Considerations

 

According to the World Business Culture website, preparation is key, and attention to detail is critical when doing business with Germany. For example, Germans are "uneasy with uncertainty and ambiguity" and instead will analyze problems thoroughly before reaching a conclusion. Once decisions are made, Germans expect them to be followed through regardless of "agreement or disagreement with the original decision." Employees expect detailed, precise directions, and in turn expect to work autonomously. Formality and respect is important, even amongst themselves. Meetings tend to be formal, as are relationships between subordinates and bosses.31

 

The

Takeaway:

Germany's stable economy and affluent consumer base make it an attractive market for international trade. Going in, U.S. companies may wish to be aware that stiff competition exists from German companies. Additionally, while regulations may make it tougher to trade in Germany than other European countries, innovative, quality products may find success.

Christine Parazio - The Author

The Author

Christine Parizo

Christine Parizo is a professional writer specializing in business and technology. She's written for a variety of TechTarget sites, including searchSAP.com, searchSOA.com, and searchCloudApplications.com, as well as HPE's Infrastructure Insights and The Pulse of IT.

Sources

1. “Germany: Market Overview,” U.S. Department of Commerce; https://www.export.gov/article?series=a0pt0000000PAtqAAG&type=Country_Commercial__kav
2. “Germany raises GDP growth forecast for 2017,” MarketWatch; https://www.marketwatch.com/story/germay-raises-gdp-growth-projection-for-2017-2017-10-12
3. “Real GDP Forecast,” OECD; https://data.oecd.org/gdp/real-gdp-forecast.htm - indicator-chart
4. Germany – Economic forecast summary (June 2017), Organisation for Economic Co-operation and Development; http://www.oecd.org/eco/outlook/economic-forecast-summary-germany-oecd-economic-outlook-june-2017.pdf
5. “Trade in Goods with Germany,” U.S. Census Bureau; https://www.census.gov/foreign-trade/balance/c4280.html
6. “Germany – Market Opportunities,” U.S. Department of Commerce; https://www.export.gov/article?id=Germany-Market--Opportunities
7. “Census Bureau: Top Five U.S. Trading Partners in Goods in 2016: China, Canada, Mexico, Japan and Germany,” U.S. Census Bureau; http://www.prnewswire.com/news-releases/census-bureau-top-five-us-trading-partners-in-goods-in-2016-china-canada-mexico-japan-and-germany-300403624.html
8. “XE Currency Charts: USD to EUR”, xe.com; http://www.xe.com/currencycharts/?from=USD&to=EUR&view=1Y
9. “Inflation, consumer prices (annual %),” The World Bank; https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?end=2016&locations=DE&start=2008
10. “Germany: Market Overview,” U.S. Department of Commerce; https://www.export.gov/article?series=a0pt0000000PAtqAAG&type=Country_Commercial__kav
11. “Germany Population,” Trading Economics; https://tradingeconomics.com/germany/population
12. “Germany GDP per capita,” Trading Economics; https://tradingeconomics.com/germany/gdp-per-capita
13. “U.S. direct investments in Germany 2000-2016,” Statista; https://www.statista.com/statistics/188615/united-states-direct-investments-in-germany-since-2000/
14. “Consumer Markets and Retail Landscape,” Germany Trade & Invest; http://www.gtai.de/GTAI/Navigation/EN/Invest/Industries/Consumer-industries/consumer-markets-retail.html
15. Ibid.
16. “Country Profile: Germany,” The World Bank; http://databank.worldbank.org/data/Views/Reports/ReportWidgetCustom.aspx?Report_Name=CountryProfile&Id=b450fd57&tbar=y&dd=y&inf=n&zm=n&country=DEU
17. “Where does Germany import from?,” Observatory of Economic Complexity; http://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/deu/show/all/2015/
18. “Here’s why Germany’s trade surplus with the U.S. is so big,” USA Today; https://www.usatoday.com/story/money/2017/06/01/heres-why-germanys-trade-surplus-us-so-big/102349370/
19. “Trumps ‘Bad’ Germans Are Third-Largest Market for U.S. Auto Exports,” Forbes; https://www.forbes.com/sites/kenroberts/2017/05/26/trumps-bad-germans-are-third-largest-market-for-u-s-auto-exports/#7907eec01aa0
20. “Germany Country Profile,” Observatory of Economic Complexity; http://atlas.media.mit.edu/en/profile/country/deu/
21. “What does the United States import from Germany?” Observatory of Economic Complexity; https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/deu/usa/show/2016/
22. “Germany’s trades surplus with U.S is ‘win-win’ situation: economy minister,” Reuters; http://www.reuters.com/article/us-usa-trade-germany-idUSKBN18J2NT
23. “Germany,” Office of the United States Trade Representative; https://ustr.gov/map/countriesaz/de
24. “Germany - Market Entry Strategy,” Export.gov; https://www.export.gov/article?id=Germany-Market-Entry-Strategy
25. “Business Registration,” GTAI Germany Trade & Invest; http://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/Establishing-a-company/business-registration.html
26. “Germany – Using an Agent to Sell US Products and Services,” U.S. Department of Commerce; https://www.export.gov/article?id=Germany-Using-an-Agent
27. “Germany – Trade Barriers,” U.S. Department of Commerce; https://www.export.gov/article?id=Germany-Trade-Barriers
28. Doing Business, World Bank; http://www.doingbusiness.org/data/exploreeconomies/germany
29. “Human Capital Index 2016: Germany,” World Economic Forum; http://reports.weforum.org/human-capital-report-2016/economies/#economy=DEU
30. “The Global Enabling Trade Report 2016,” World Economic Forum; http://reports.weforum.org/global-enabling-trade-report-2016/economy-profiles/#economy=DEU
31. Doing Business with Germany, World Business Culture; https://www.worldbusinessculture.com/country-profiles/germany/top-tips/

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