The latest annual data from the German Government’s statistics service measures UK-Germany trade for 2022 at 136 billion euros, with Germany enjoying a trade surplus of 12 billion euros.
This makes the UK Germany’s 8th-most important trading partner, down from 5th-highest in 2018.
Back in February 2021, a little over a month after Great Britain left the European Single Market, a survey of German businesses conducted by Chamber of Commerce and Industry (DIHK) found that 3 out of 5 German companies rated their business with the UK as poor.
Only 10% described their business as good – much lower than Eurozone countries (33%), and EU countries outwith the Eurozone (28%). The DHIK survey also found that German companies rated their business prospects in the United Kingdom in the coming twelve months as largely negative. 57% foresaw a further deterioration in their business relations with the UK, compared to Eurozone countries (19%), and EU countries outwith the Eurozone (18%).
In addition, one in every six of the companies surveyed that had invested in the UK said that they were planning to relocate those investments to other markets (or had already done so). The majority of those companies said that they would be relocating within the EU Single Market. Finally, almost half of the respondents in the survey said they were concerned by the potential for tariffs to be added as part of the current UK-EU trade deal.
However, since then, the picture appears to have improved somewhat and there are signs of a rebound in trade.
This is particularly true when it comes to Germany’s exports to the UK. ONS data shows that German exports rose significantly in the autumn of 2021, and remained at a noticeably high level even despite the global economic impact of Russia’s invasion of Ukraine.
As for the UK’s exports to Germany, the figures for 2022 are also better compared to 2021.
The evident improvement in the levels of UK-Germany trade last year coincided with improvements in customs services, as well as a better understanding of the additional paperwork required for UK-EU trade.
This is something that hasn’t gone unnoticed by British Chamber of Commerce in Germany, whose latest German-British Business Outlook concluded that the Brexit trade burden has alleviated to some extent.
To get a sense of the mood in Germany regarding the future of UK-Germany trade, we reached out to the British Chamber of Commerce in Germany (BCCG) for their insight.
First and foremost, referring to the aforementioned Business Outlook report, the BCCG noted the improved situation when it comes to customs obstacles and border friction:
“In our German-British Business Outlook 2023, prepared in cooperation with KPMG, the companies surveyed indicated that they are now feeling fewer burdens from Brexit. There were significantly fewer additional costs for customs duties, logistics and administrative efforts in trade with the UK. Furthermore, the companies expect an increase in turnover in trade with the UK this year and in the coming years,” a BCCG spokesperson told trans.iNFO.
Another plus, says the BCCG, is the extra “stability” in the UK Government since Rishi Sunak took over, with the Windsor Framework in particular being the subject of praise.
In addition, although it may not be music to the ears of Brexit-purists, the BCCG told trans.iNFO that the UK’s transpositions of EU laws has also helped UK-Germany with trade and investment:
“In addition to the major political issues addressed by the Windsor Framework, the British authorities have also been working effectively for some time on the transposition of EU rules into British law, thus actively helping to promote the UK economy itself and the attractiveness of the location for foreign companies through investment and legal certainty in many areas. This overcoming of the “state of shock” after Brexit is still ongoing, but promises a medium and long-term stabilisation of the British economy, which after the end of the Corona pandemic in combination with Brexit had its historic low – in terms of figures and investment climate/image.”
Giving one example of the moves made to help business, the BCCG cited the extended grace period for the UKCA standard:
“As an example in the customs area, the UKCA marking for electronic products can be seen. Due to the withdrawal from the European CE marking, British authorities had to define their own standards. This complex process under different governments led to changing regulations and caused uncertainty for producers and importers in the UK. In the meantime, there is a long transition period until the end of next year and applicable regulations for the standard. Thus, producing companies can prepare themselves and plan the sales of their products on the UK market in the long term. Overcoming such post-Brexit uncertainties in many different areas of economic trade and customs law is a key task for the UK government. With clear rules, the economy can recover, as we have seen from the encouraging economic data – including in foreign trade with Germany – in recent months.”
The grace period, however, now appears irrelevant, as since our correspondence with the BCCG, the UK Government has decided to allow the use of the EU’s CE mark indefinitely.
While this will likely infuriate those companies who invested the time and money to apply for UKCA, the possibility to continue exporting CE-marked products will largely be welcomed by EU-based manufacturers.
On the other hand, when it comes to divergence, which can make life trickier for European firms, the BCCG has observed some possible advantages of Brexit.
“The situation in the UK is also perceived as more business-friendly than in the EU or Germany. Companies are affected by less bureaucracy and regulation in the UK, which makes it an important market, also for future investments,” the BCCG told trans.iNFO.
The organisation even told trans.iNFO that some German firms had decided to set up some entities in the UK due to there being “fewer bureaucratic obstacles”:
“From a regulatory point of view, there is also a possible advantage for the UK as a result of Brexit, as they are now no longer bound by EU requirements in their legislation. The UK can use this to position itself in certain sectors as an alternative location for companies with more freedom in research and investment and continued proximity to the EU market. An example of this is the relocation of cancer research by the German pharmaceutical company Biontech to the UK, as there are fewer bureaucratic obstacles there, according to the company itself. The British government is also planning to pursue a more liberal regulatory policy than the EU in the field of AI and is thus planning to establish itself as a global development location for this future technology,” said a BCCG spokesperson.
The BCCG also believes that the UK’s lower climate standards could fuel British exports of hydrogen to Germany:
“The field of renewable energies is another future market in which Great Britain is significantly expanding its production of wind power and can thus also become an increasingly important energy supplier for Germany in the future. This is particularly likely in the area of hydrogen, as green hydrogen can be produced in the UK, which energy-intensive German industry, for instance, will increasingly need in order to comply with climate standards.”
Taking on board all of these factors, the BCCG expect a “sustained recovery of the British economy and thus a continuation of the rising volume of foreign trade with Germany”.
Moreover, the BCCG stated that the UK dropping from Germany’s 8th to 5th most important trading partner does not tell the whole story:
“These and other underlying factors lead us to expect a sustained recovery of the British economy and thus a continuation of the rising volume of foreign trade with Germany. It can be stated that, even after Brexit, there has been no large-scale exodus of companies from the UK and that, after the removal of regulatory uncertainties, the UK remains one of Germany’s most important economic partners. Despite the shifts in Germany’s trading partner ranking, the UK is the third largest destination for German net exports. This means that successful export business by German companies on the island makes a significant contribution to Germany’s foreign trade success. In the self-image of the export-oriented German economy, this is a key indicator.”
The BCCG added:
“2,163 German companies active in the UK employ around 415,000 workers there and 750,000 German jobs are directly and indirectly linked to exports to the UK. Germany is therefore in one of the best positions to benefit from the UK’s coming economic upturn. This is an opportunity for the national labour market in Germany as well, which is why the UK will not be forgotten as one of Germany’s most important economic partners despite the recent past.”
Finally, looking at the global trade picture going forward, the BCCG anticipates that geopolitical changes can be another catalyst for increased trade between the UK and Germany:
“Even though trade relations with the United Kingdom have become more difficult, the British island remains an important foreign trade partner for Germany and the EU. Increasing geopolitical risks in the world make the world’s sixth-largest economy on the doorstep of the EU an important trading partner. The days of unquestioned global expansion by German companies are coming to an end. In the meantime, self-interests, e.g. of the Chinese and Indian governments in their investment incentives for foreign companies, are becoming increasingly apparent and this is leading to a reaction of German companies to invest again in their own market of origin. The Corona pandemic has also challenged the dependence on global supply chains and we see this as another factor that will lead to a strengthening of European business for German companies and thus the UK market as the second largest behind Germany.”
One factor that could nonetheless hinder UK-Germany trade, at least to some extent, is the SPS checks Great Britain is due to implement on EU fresh food and animal products. However, reports last week emerged that the checks will be pushed back until early next year. If true, the change will make things much simpler for German food exporters during peak season.
Irrespective of that, looking at the thoughts of the BCCG as well as the latest trade data, there appears to be enough signs to be quietly confident of UK-Germany trade remaining healthy in the years to come.
Featured image photo © Copyright Michael Trolove and licensed for reuse under this Creative Commons Licence