The war in Ukraine is damaging societies and economies alike – but there is a chance, that it will fasten necessary transformation processes, i.e. to gain independence from fossil fuels. In this interview, Karl Haeusgen, President of Europe’s largest mechanical engineering association VDMA, describes, which opportunities are arising at the moment, which hopes he has for free trade agreements and what role China will be playing for industry in the future.

Mr. Haeusgen, in the course of  the Ukraine war, some people argue that climate protection could be put on hold for a while or even be put on the back burner because the issue of gas supply and energy supply as a whole is becoming so important and so urgent that other goals have to wait. Is that the right idea?

Answer: It seems to me that anyone who argues like that hasn’t heard the bells ring on climate issues. Actually, the war Mr. Putin has started will, in my view, be a transformation accelerator and not hinder the transformation. It will accelerate the shift away from fossil fuels to other forms of energy, not slow it down. Independence from fossil resources will happen much faster. Hydrogen strategies, electric mobility, all this is now coming faster. In this respect, I am confident that climate protection will not lose its importance in the course of this war, but will gain significance.

I: And what does this mean for your field of work, the mechanical engineering industry?

A.: For the mechanical engineering industry, it means that we provide the necessary technologies. When you look at all the risks and opportunities, the opportunities are far bigger. We have the technologies, regardless of which technology path is taken. We hope for and we demand from politics a technology-open development that is based on a competitive market-driven approach. For this our companies have the components, the machines and the plants.

I: Europe’s position in world affairs is increasingly seen as shaky. Europe’s position in the triad is being questioned. What is your position here?

A: Basically, it seems to me, that we can have confidence with the EU. There is no other economic area of this strength. If we look at the number of inhabitants on the one hand and the purchasing power and the respective income on the other, we are ahead. If we use this position confidently and in a market economy spirit, then I have no fears for the EU. I deliberately say in a free-market spirit, because we are currently seeing an intensity of regulation at EU level that worries me. It is a matter of finding the right balance between free market development on the one hand and a necessary regulatory climate and industrial policy on the other. The pendulum in the EU is swinging too far at the moment into the direction of industrial and climate policy.

I: Free trade agreements are also part of a market economy development. CETA seems to be on the right track after a long time of stalling. Do you still have hope that there could even be a transatlantic free trade agreement one day?

A: Yes, isn’t it amazing, CETA is actually coming through. Again, Putin is helping us. The war is a CETA accelerator, because it has become clear again to many in the European Parliament, but also here in Germany, how important it is to oppose autocratic social and economic systems and to support free trade. That is why CETA will be ratified, which was not at all likely before the Ukraine war. If we now look at the trade relations with the US, I believe that a good start has been made with the TTC talks. The focus is particularly on technical trade barriers, which, incidentally, are among the most important for our industry. So if we could reduce or eliminate these, a lot would be achieved for our industry. Even better, of course, would be a comprehensive free trade agreement, although one has to be careful with the term comprehensive. We must not overload free trade talks with other non-trade issues, as it happened with TTIP. Otherwise they will not be socially acceptable and enforceable.

I: One reason why Europe and America have come closer again is the development of China. China is increasingly becoming a systemic competitor. China plays by its own rules on the world market. How do German and European machinery and plant manufacturers, who also live off China, have to adjust to this situation?

A: Without a doubt, the question of how we strategically deal with China as a partner and as a competitor at the same time is one of the crucial questions that will occupy our industry in the coming years. It is also important to know, because we are looking so hypnotised at Russia at the moment, that Russia is negligible as a market for mechanical engineering, while China is one of our the largest markets. At the same time the EU is also one of the largest markets for Chinese companies, so there is definitely a mutual dependency. Yes, China is a competitor, a competitor in technologies and products, but also a competitor in the political and economic system. In my opinion, the right response at the political level is first of all to trust in one’s own strength. The strength of a large domestic market and the strength of a liberal market economy in a democratic social system. However, we should not approach China with naivety, but we should cultivate competition without false consideration. For machinery manufacturers, this also means analysing cluster risks in detail and considering how these cluster risks can be mitigated. If we look at the market shares of mechanical engineering in other countries, the USA is an example to expand, but so is Japan or India. Then there are definitely other regions of the world where opportunities can be created to counter a possible decline in China business. This is the homework that every company has to do.