The path to the scenario: Drivers and course-setting

• Escalation spiral between China and the USA leads to bloc formation and decoupling of global trade activities
• De-risking strategies of politicians and companies are often not adapted to the situation
• Slow adaptation of supply chains and export strategies
• "Business and innovation with scarcities"

Scenario world 2030

The USA and China have not managed to responsibly organise their competition for influence, status and technologies. Instead, trade disputes, mutual containment strategies and the race for international influence continue to escalate. On the way to the year 2030, the escalation spirals ultimately lead to an abrupt bloc formation along democratic states and authoritarian systems. Non-aligned states attempt to profit from this development. The consequences pose existential challenges for German industrial SMEs - and will still be blocking the transformation towards a climate-neutral economy and digitalisation in 2030.

(Dis)order along blocks

The EU and its member states belong to the "democratic bloc", with individual members threatening to leave in view of their dependence on China and repeatedly circumventing sanctions. The transatlantic relationship is robust, but nevertheless tense in some areas: For example, the USA makes import and export conditions dependent on the decisions and defence spending of individual EU members. Non-aligned states are positioned alongside the two blocs. On the one hand, these are dependent on trade with the blocs and support (e.g. technology transfer, infrastructure investments). On the other hand, non-aligned states - for example in South America or Africa - sometimes have a good basis for negotiation, for example due to their geographical location, their potential for raw materials or renewable energies. The formation of the bloc is not leaving China and the USA unscathed; the decoupling is resulting in economic costs and increasing internal instability in both countries.

Loss of prosperity and adaptability to a new reality

Global economic exchange between the two blocs and non-aligned states has in some cases abruptly decoupled and is being reorganised. Trade activities and investments between the blocs have practically come to a standstill due to trade policy measures. The discontinuation of direct trade activities between the blocs is leading to increased reshoring and friendshoring activities in Germany and around the world, with government support being provided in particular for sectors categorised as critical. On the other hand, there are opportunities for non-aligned states. Existing and newly established companies utilise local raw materials, import intermediate products and then export them abroad. SMEs in export-dependent sectors or with extensive foreign direct investment in the "Chinese bloc" face existential challenges. They have to reorganise their business along the logic of the bloc and the non-aligned states.

The consequences of decoupling are serious for Germany, but manageable in the long term. In 2030, the long-term loss of prosperity due to decoupling will be discussed, while at the same time the adaptability of international trade flows in the industrial SME sector will be emphasised. Trade activities, supply chains and production are increasingly adapting to new realities. Nevertheless, there will be shortages of critical raw materials, inputs and products.

SMEs are continuously increasing trade and foreign investment in the EU internal market, with their own bloc and also with non-aligned countries (e.g. raw materials, factories and development of services abroad). Trade policy instruments are also reducing competitive pressure in the EU internal market, for example by eliminating competitors from China.

Security of supply as a challenge and driver of (joint) innovations

Inflationary pressure is still high in Germany despite the adjustment process. The supply of labour and skilled workers, energy, raw materials and inputs is cost-intensive. Companies without a clear range of services and with a weak negotiating position find it difficult to pass on price increases along the value chain. Resource and energy efficiency as well as savings are therefore essential for everyday business and innovation activities in industrial SMEs. Decentralised supply concepts, the development of local raw material deposits and circular economy principles are becoming necessities, but true energy and raw material self-sufficiency is still illusory. Cross-company, supra-regional value creation networks are joining forces via digital platforms in "B2B sharing networks" in order to optimise cost structures, investments, capacity utilisation and the availability of workers.

Consequences of decoupling as a catalyst for regional disparities

Regional disparities and urban-rural contrasts in Germany are being exacerbated by the economic consequences of decoupling and the resulting reduction in financial room for manoeuvre in the public sector. Relocations or business closures are a particular challenge for regions that were historically dependent on medium-sized or large companies. They have ceased to be a source of trade tax and jobs and have left a lasting gap. Nevertheless, the people in these regions have a strong sense of belonging to their homeland, meaning that there is no significant internal migration.

Technological arms race extends into the SME sector

A technological arms race between the blocs leads to bloc-specific norms and standards. This creates a high level of complexity for SMEs that import or export products to non-aligned countries. The arms race also manifests itself in state-driven industrial espionage and cyber attacks from abroad. The risks and costs for SMEs are reaching record levels. This particularly affects innovation leaders and SMEs that offer "critical" products and services. The military and technological arms race is driving government investment in R&D, thereby favouring technological breakthroughs in key technologies (e.g. AI, materials, health technologies). These technologies can be used for both military and civilian purposes (dual-use character). Such technologies are transferred to the economy with a time lag and taken up by particularly innovative SMEs. These are often technologies that still had a very low level of maturity at the beginning of the 2020s and can now be utilised unexpectedly quickly.