Germany's Industrial Decline Is Caused by Political Elite's Shortsightedness, Not Energy Policy
Source: Dominik A. Leusder. "German Deindustrialization Is Self-Inflicted." March 5, 2026. jacobin.com
The Gist
Germany is losing industrial jobs faster than during COVID, but politicians are blaming the wrong things like energy costs and the Ukraine war. The real problem is that German leaders have made bad investment decisions for years while China has gotten much better at competing with German manufacturers.
Conclusion
Germany's deindustrialization is primarily caused by the shortsightedness of its political elite, not energy policy failures or the Ukraine war
Premises
- Germany has lost 248,000 industrial jobs since 2020, with manufacturing job losses in 2025 exceeding pandemic levels
- Energy prices are not the main problem - returning to Russian gas would be more expensive than current alternatives, and energy-intensive industries like chemicals show production decline predating the Ukraine war
- The real driver is Germany's growing trade imbalance with China, where Chinese goods are displacing German production while German exports to China fall
- Years of self-destructive underinvestment and austerity policies in Germany have greatly exacerbated the competitive disadvantage
- Manufacturing jobs generate 15-40% higher value added than service jobs and account for 70% of private R&D investment, making industrial decline economically damaging
- Political elites like Friedrich Merz still believe the solution is a 'race to the bottom' on wages and regulations rather than addressing the real structural problems
Assumptions
- Manufacturing is inherently more valuable to an economy than services
- China's industrial policy intensification is the primary external factor driving German decline
- German political elites have agency to make different policy choices that would reverse deindustrialization
- The UK's service-based economy model represents a cautionary tale rather than a viable alternative
- Investment and industrial policy can effectively counter competitive pressures from China