Frenemy? How US Deprives Germany of Strategic Autonomy and Status as Industrial Powerhouse

German Chancellor Olaf Scholz is expected to pay a visit to the White House on March 3, 2023. US President Joe Biden and Scholz are due to "reaffirm the deep bonds of friendship" between Berlin and Washington, as well as discuss their support to Ukraine, anti-Russia sanctions, and ways to strengthen transatlantic security, according to the White House's press release.

However, not everything has been rosy in the German economic garden since Washington forced its NATO allies to join the US sanctions war on Russia. The US, UK and EU slapped an unprecedented number of sanctions on Russia after the latter started its special military operation to demilitarize and de-Nazify Ukraine.

Germany, which has been buying Moscow's cheap pipeline gas since the 1970s, considerably slashed purchases of the fuel from Russia in 2022. Both Gemany's small and medium sized enterprises - which do not have a capacity to respond to sudden increased costs of production - and large industries found themselves in a heap of trouble as a result.

BASF, the German chemical giant, announced on February 24 that it would cut 2,600 jobs, or about 2.3% of its global workforce, stop share buybacks and increase investment to improve competitiveness as it expects a further decline in earnings due to rising costs. Out of 2,600 jobs, 1,800 will be cut at the Ludwigshafen headquarters in Germany.

At the heart of BASF's soaring costs are European natural gas prices which started to rise prior to the Russian special military operation and were later amplified by the EU's anti-Russia sanctions, which almost immediately backfired on the bloc.

The destruction of the Nord Stream pipelines on September 26, 2022, made the problem even worse, forcing Berlin to largely shift to expensive liquefied natural gas (LNG) from the United States. Even though European energy prices have somewhat eased to roughly €50 per megawatt hour (MWh) from an August 2022 peak of over €340, the energy costs remain well above historic averages, the western press has admited. Previously, BASF CEO was quoted as saying that Russian gas is "the basis of our industry’s competitiveness."

In October 2022, BASF announced that it would be "permanently" downsizing its operations in Europe and moving its operations to the People's Republic of China.

A whopping 9% of Germany's small- and medium-sized industrial companies signaled at the time they would likewise be moving their production abroad, according to the Foundation for Family Businesses in Germany and Europe's survey.

According to the Diplomat, he approved the purchase of a stake in the port of Hamburg by China Ocean Shipping Company (COSCO) prior to his trip. Scholz came under heavy criticism from the US and Western European media for his charm offensive in Beijing. Berlin was warned against growing dependence on Russia or China by its western peers. Furthermore, Scholz's coalition members put forward their China foreign policy and trade strategy which envisaged removing incentives for German firms doing business with China and pursuing closer ties with the island of Taiwan.

While the German leadership sent emissaries to several other Asian countries seeking much-needed business opportunities, the US has not been making it any easier for its NATO ally.

The US sold its LNG to Germany for top dollar. Berlin and Paris have repeatedly requested that Biden reduce natural gas prices for European countries. However, the US president shrugged off their pleas, stressing that he cannot dictate market terms to US companies.

"Without Russian pipeline gas, Europe’s demand for LNG is projected to increase 150% from 2021-2040 as overall natural gas demand declines more slowly than domestic production and non-Russian pipeline imports," a report from the American Petroleum Institute reads. "LNG is projected to meet approximately 50% of Europe’s natural gas demand through 2030 (…) While US LNG is already flowing to Europe at record levels, significantly more will be required to fully rebalance European gas markets."

Simultaneously, Joe Biden inked the Inflation Reduction Act (IRA) into law in August 2022. The IRA offers tax credits for electric cars made in North America and prioritizes US battery supply chains. On top of that, the policy promises large subsidies, incentivizing European producers to transfer their businesses to the United States.

Meanwhile, Germany has slid into a technical recession this winter, as per ING Group analysis. According to the Dutch financial firm, "there are very few signs pointing to a healthy recovery of the German economy any time soon." Germany is facing a series of structural challenges and it remains unclear whether Berlin will manage to secure enough natural gas for the 2023/2024 winter season.

To cap it off, the US is pressing Germany to spend more on NATO's proxy war in Ukraine against Russia. For its part, the European press reports that the German Armed Forces are facing financial shortages and urgently need long overdue reforms and modernization.

Needless to say, the Nord Stream bombshell by Pulitzer Prize-winning journalist Seymour Hersh rubbed even more salt into Germany's wounds. Even though the German government remains mute on the results of the investigation into the September 26 sabotage attack, German lawmakers are not sitting on their thumbs.

According to European conservative media, in the wake of Hersh's expose, lawmakers from the left-wing Die Linke and the right-wing Alternative für Deutschland (AfD) have called for the establishment of investigative committees in connection with the attack on Germany's critical gas infrastructure.

Earlier this month, AfD Co-Chairman Tino Chrupalla delivered a speech in the Bundestag calling on the government coalition to shed light on the attack. According to him, the question at the heart of the debate is whether Germany's NATO allies attacked the nation's critical infrastructure. He argued that if that's the case, "one would have to question whether the alliance guarantees security in Europe or rather endangers it," he said, adding that "the consequence would be the withdrawal of all US troops." "The suspicions of the Pulitzer Prize winner absolutely must be investigated," Chrupalla insisted.

Die Linke expressed solidarity with AfD on that matter. Die Linke's Sahra Wagenknecht questioned the German government's silence with regard to the sabotage attack and supposed role of the US and Norway in it, and posed the question as to whose interests the German federal government represents.

While commenting on the unfolding debate over Sy Hersh's expose, some US conservative observers suggested that if the Pulitzer Prize-winning journalist is right, that would mean that Washington never really trusted its Western European ally.

Furthermore, it would mean that the US has long sought to undermine Germany's ability to maneuver between the West and the East, they say, referring to German Chancellor Willy Brandt’s Ostpolitik concept. After the Second World War, Western Germany and the USSR managed to mend fences and strike their first gas-tube deal in the 1970s. Following the collapse of the Soviet Union, Russo-German collaboration grew deeper. Likewise, Berlin has developed working relations with China over the years. However, it appears that Washington is trying to limit Berlin's room to maneuver and strip it of its strategic autonomy.

Meanwhile, AfD's popularity in Germany is growing: according to the February survey by UK data analytics firm YouGov, the German conservative party hit 17% in a poll for the first time in years. AfD ranks third in popularity, behind the front-runner CDU/CSU (27%), and Chancellor Scholz’s SPD (19%). Time will tell whether Washington policy-makers will completely coerce Germans into submission or whether the Western European nation will finally embrace multi-polarity and genuine strategic autonomy.