Which countries contribute the most value added to the production of the German automotive industry? This is illustrated in a policy brief by Prognos for the Bertelsmann Stiftung which also illustrates the significance of value creation in a globalized world.
A central aspect of globalisation is that companies not only sell their products all over the world, but the production of goods and services is divided into different stages of the value chain at home and abroad. While the direct (bilateral) supplier relationships can be understood reasonably well, the direct and indirect added value contributions of domestic and foreign suppliers often remain hidden.
On behalf of the Bertelsmann Stiftung, a policy brief by Prognos, using the German automotive industry as an example, shows the extent to which other countries contribute directly and indirectly to the production of added value in this sector. Multi-regional input-output tables are also used to record upstream suppliers from the entire global economy and their added value contributions.
Example German automotive industry
In 2014, German automobile manufacturers sold products worth around 270 billion US dollars worldwide. 70 percent of the added value contained in these products was generated in Germany. The remaining 30 percent are distributed globally.
From this perspective, the Policy Brief draws a number of conclusions:
- An appropriate consideration of the importance of foreign countries for the economic added value in Germany cannot be made solely by looking at imports of intermediate goods and services. The example of the German car industry shows: A single look at intermediate consumption imports overestimates the importance of intermediate consumption from the Czech Republic, Hungary and Austria for added value in Germany. At the same time, it massively underestimates the role of the United States, the People's Republic of China and Russia. In relative terms, the former are more transit countries for added value, while the latter are more countries in which added value originates.
- The assessment of the critical dependence of an industry or an entire economy on another economy - understood as vulnerability to a total or partial failure of supply - results from the joint consideration of trade in goods and services intended for final demand, trade in intermediate goods and trade in added value. The example of the German car industry shows: If Germany can no longer import car parts from China, the corresponding customs revenues will be lost. At the same time, if the car parts cannot be substituted, the turnover or employment figures of the German companies that depend on these car parts - and the tax revenues or wages to be paid for them - also fall. These losses would be especially high in areas where a great deal of German added value depends on the availability of Chinese car parts.
- The added value perspective makes it clear that the increasingly fragmented and complex international division of labour also places ever higher demands on its political control. Take the German automotive industry, for example: It is not enough to concentrate on good trade relations with Germany’s direct European neighbors from which many intermediate goods are imported directly. Economic relations with major added value suppliers such as the United States, Russia and China are also crucial. At the same time, Germany must advocate international rules for control along the entire automotive value chain and prevent bilateral disputes between states that produce many car parts for Germany or allow transit for them.