This is part of our weeklong series marking the one-year anniversary of the Russian invasion of Ukraine, February 24, 2022. See all of the stories here.
A year into Russia’s invasion of Ukraine the transatlantic alliance appears revitalized and stronger than ever. A significant component of this has been the strategic relationship between the U.S. and Germany. But due to economic and geopolitical tensions over the last 12 months, the partnership could be sailing into rough seas.
Since Russia’s invasion of Ukraine one year ago, the West has imposed unprecedented sanctions on Russia, including on its energy sector. Since the 1980s, Germany has been reliant on cheap Russian gas to supply its vast industrial output. Half of Germany’s economic output and nearly two thirds of the country’s jobs lie within the country’s “mittelstand,” or the 2.6 million small and medium sized enterprises, with limited ability to respond to suddenly increased costs of production. It has thus been particularly challenging for Germany to deal with the impact of the sudden cutoff from Russian energy supplies.
While Germany faces a likely recession and a decline in living standards, the United States has been selling expensive liquefied natural gas to Germany to replace Russian natural gas and has substantially profited from this. Europe’s LNG needs are projected to increase by 150% from 2021 to 2040. While U.S. LNG is already flowing in at record levels, much more will be needed in order to rebalance European gas markets.
The costs associated with this increased reliance on liquefied gas will have a profound effect on European industries’ competitiveness. Germany and France have accused the U.S. of profiting from the war at the expense of the Europeans. French Finance Minister Bruno Le Maire has warned against the conflict in Ukraine resulting in U.S. economic domination and a weakened Europe, stating that it was unacceptable to let the U.S. export LNG at four times the price than is sold inside the country.
In addition, U.S. President Joe Biden has rolled out the Inflation Reduction Act, intended to combat climate change while regenerating U.S. industry and infrastructure. While the measures supporting U.S. industry are understandable for domestic reasons, its protectionist policies risk rendering key sections of European industry uncompetitive. Germany’s auto industry is particularly vulnerable to this act.
The IRA imposes requirements that green technologies such as electric vehicles should have U.S.-made parts. It also promises large subsidies for green hydrogen, incentivizing European producers to transfer their businesses to the United States. This especially applies to energy-intensive industries, which are already beginning to relocate production overseas due to lower gas and electricity costs. German concerns about a loss of competitiveness of the entire economy and deindustrialization will surely intensify.
Throughout this past year, the U.S. administration, followed by the NATO Secretariat and some European governments, has been making bold political statements to the likes of this war being a global struggle between democracy and autocracy. The renewed zest behind this ideological struggle includes new tactics such as “friendshoring” whereby democracies invest in like-minded countries while lessening their dependencies on autocracies.
This also consists in the rerouting of supply chains to politically and economically “safe” countries to avoid potential disruptions. Such policies are motivated by the shocks to the global economy as a result of the COVID-19 pandemic and Russia’s invasion of Ukraine. Despite these new perceived threats, actions by the United States and Germany paint a sharp discrepancy with their political declarations and commitments to one another.
The IRA does not include measures to extend protection or subsidies to allies and sends a protectionist message to America’s friends abroad. The EU has in turn unveiled its Green Deal Industrial Plan, its own plan on providing green energy subsidies intended to boost the competitiveness of European industry amidst U.S. protectionism and high energy prices. While trade disputes are not entirely new between the EU and the United States, this current “tit-for-tat” on green subsidies could signal a new era of protectionism, affecting global ties, international trade and collaboration amidst a geopolitically tense time.
Also contrary to “friendshoring” principles, Germany appears to have increased its dependence on China at the concern of the United States and other western nations. In November of last year, German Chancellor Olaf Scholz visited Beijing with a business delegation from major corporations in Germany. This symbolizes the chancellery’s continued interest in pursuing close economic relations with China despite Scholtz's coalition government being deeply divided on Germany’s China policy. The country’s auto industry is particularly reliant on China as Volkswagen relies on the Chinese market for at least half of its profits. In 2022, Germany invested a record ten billion euros in the Chinese economy.
To make matters worse, a bombshell report by Seymour Hersh has recently suggested that the U.S. may have been behind the Nordstream pipeline bombings last year. Previous investigations by the Swedish, German and Danish governments have revealed that the incident was indeed an act of sabotage by a state actor, but that the perpetrator was still unknown. A report by the Washington Post followed a couple of months later stating that no evidence had been found that the act was committed by the Russians, leaving the public to doubt who the perpetrator could really be.
The German government has not reacted to Hersh’s allegations, at least publicly. The German mainstream media belatedly reacted to Hersh’s piece, but only to dismiss it without serious investigation. This suggests one of two things: either the Germans do not believe the allegations to be true and are simply ignoring them, or they are politically unable to make any negative statements given the confrontational geopolitical situation the West finds itself in today.
Should Hersh’s allegations prove true, this would indicate that the U.S. may have felt the need to “keep Germany in line” amidst Russia’s attack in Ukraine out of fear that it would simply carry on obtaining its much-needed gas supplies from Russia. And if true, it would indicate that the core relationship that has been an important component of U.S. power in the world since 1945 is on much shakier grounds than is outwardly displayed.
At the one year mark of the war in Ukraine, U.S. Secretary of State Anthony Blinken, in his meeting with his counterpart Wang Li at the Munich Security Conference, alleges that China is considering sending lethal aid to Russia. The Chinese have not made any official statements of the sort, but if they do indeed pursue this path, the United States will no doubt feel the need to respond. Some of these responses could include placing sanctions on China, reinforcing strict adherence to the sanctions regime on Russia, increasing U.S. military aid to Taiwan, or increasing U.S. security posture in Asia.
In light of Germany’s economic concerns, the United States may have a hard time gaining needed support among its transatlantic allies to be as tough on China as it would like them to be. As this war escalates with more potential Chinese involvement, forcing Germany to pick a side will be a true test to the relationship.
One thing is clear though, should Germany cut economic ties abruptly with both Russia and China in such little time, the country will be on a sure path to economic self-sabotage, particularly in the face of renewed American protectionism. How far Germany is willing to go for the sake of values and geopolitical considerations remains to be seen, but the U.S. - German relationship may face difficult challenges ahead.
The willingness of liberal European governments to follow America’s lead in the past two years has owed much to the fact that a Democratic president is in the White House. Should a non-Atlanticist figure similar to Donald Trump re-enter the Presidency in two years, it could severely weaken the relationship, even as rising economic concerns in Germany about the dangers to German industry impel the German government to take a tougher stance against U.S. pressure to isolate China.
These are important factors to consider as we contemplate the one year anniversary of Russia’s invasion of Ukraine and decide how to bring this conflict to a conclusion before risking greater escalation and a larger geopolitical confrontation.
