Peru - Germany: A business relationship surviving times of crisis

Published on 16 February 2021

Despite the problems caused by the US-China trade war and COVID-19, imports and exports between Peru and Germany have managed to grow in key sectors.

The U.S.-China trade war and, above all, the COVID-19 pandemic, have been harmful to economies around the world. However, Peru and Germany have managed to take advantage of their good relationship to benefit their producers and consumers with their portfolios.

This relationship was reinforced on March 1, 2013, when the Peru - European Union Trade Agreement, signed on March 23, 2011, came into force.The agreement made it possible to reduce the trade flow between both countries, and to establish terms for exchange in a way that has stimulated economic growth that allowed to palliate the impact of the shocks faced in recent years, observed in the following graph (2013: European crisis, 2014-2016: revaluation of the dollar and fall in the price of copper, 2018-2019: China - United States trade war, 2020: pandemic).

The reinforcement of the relationship between both countries allowed for a significant flow that has prevailed even until the last two years, which have implied a slowdown in the global economy. It is worth noting that despite the indirect impact of the trade war between the United States and China, manifested in a lower copper price during 2018 and 2019, the total amount of what was exchanged has fluctuated around 1.5% of the Peruvian GDP, partly thanks to the positive impact of specific imports related to infrastructure projects. And in 2020, the level still represents 1% of the Peruvian economy's production.

Peru's traditional portfolio is made up of mining, agricultural and fishing products: copper, gold, silver, zinc, fish flour and coffee. As for non-traditional and value-added products, since the 1990s asparagus, grapes, bananas and other fruits and vegetables have been shipped. Finally, it is important to note that for Peru, Germany is also a relevant destination for textiles and intermediate goods such as copper wire and safety glass used in the automotive industry.

It is interesting to note that while the COVID-19 pandemic impacted all sectors of the world economy, food was not affected. On the other hand, if one compares the figures for the last two years, all industrial metals have underperformed in 2020. In addition, the stoppage of production during the most extreme period of the quarantine also had a considerable negative impact and reduced the benefit of higher prices. Only in the case of tin the production remained stable, so it was possible to take advantage of the increase in its price, which, by the way, was recorded before the start of the recovery of the Chinese economy towards the end of the first quarter.

Germany's export portfolio to Peru

Germany stands out as a country specialized in the development of high industrial technology. Its laboratories and development centers are essential for the medical, automotive, energy and agricultural industries. The list in the following table is just a sample of the enormous variety of tariff items linked to these segments. It is worth mentioning that, with the signing of the trade agreement, Peruvian consumers and businesses have benefited from lower prices and clear regulations regarding transportation and clearance.

During the pandemic, the most affected sectors have been those related to consumption and investment, such as vehicles and machinery parts. In contrast, the health sector remained active because it is considered an essential area for subsistence, as well as food. The case of steel laminates and electric motors is noteworthy, but the flow may be related to isolated cases such as infrastructure or mining projects in particular that require specific metal-mechanical installations or work.

Means of transportation

The composition of the portfolio of Peruvian products shipped to Germany is mainly non perishable, so the use of air transport is low. Only some fruit packages such as grapes or premium quality blueberries require direct air transport, as well as high-value or fragile objects such as handicrafts and some glassware. In the case of imports, some equipment and, above all, medical supplies require air transport due to their high fragility or immediacy in terms of availability requirements.

An important partner

Germany is a strategic trading partner for Peru. Aspects such as the health of its citizens, the quality of transportation services and the productivity of industrial companies depend, to a large extent, on what is developed in that country. On the other hand, peruvian exporters find consumers or clients with high purchasing power for goods that are fundamental for industries that are key to their country's competitiveness, such as mining, agriculture and textiles.

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