Trade deficit, a major weakness of the French economy

The tricolor trade deficit has reached unprecedented levels, but the government is betting on lower production taxes and re-industrialization to reverse this trend. However, products made in France also need to be upgraded for better exports.

According to Bruno Le Mer’s own approval, it is a “blind spot in French economic policy.” France’s foreign trade has been unsuccessful in recent years. According to the latest customs statistics, the trade deficit of commodities when imports exceed exports further widened to reach € 9 billion in November 2021. In other words, it is the “lowest monthly income ever reached”.

The findings are clear. The cumulative deficit for the 12 months of November reached € 77.6 billion. Again, this is 2.6 billion more than the record annual deficit recorded in 2011. During this period, French imports reached a historic value of € 52.5 billion. For 2022, this same deficit in the trade balance should be estimated at 95 billion euros, approaching 100 billion.

Deindustrialization

It is a conservative expression to say that we are worried about the situation of France’s foreign trade. Especially because Bruno Le Mer himself thinks that “the power of the state is measured by foreign trade.” Indeed, the record numbers recorded in November can be explained by certain circumstances. Soaring energy and commodity prices and the rapid recovery in domestic consumption against the backdrop of the post-Covid recovery have contributed significantly to the strong growth of imports. Still, the difficulty of France’s foreign trade is nothing new. At least they go back 20 years.

If exports increased by 54% between 2001 and 2019, the increase would be 76% in Italy, 108% in Germany and 133% in Spain, all three countries having a surplus in their trade balance. At the same time, France’s import levels are exploding, far from aligning national production with domestic consumption, which is the main driver of France’s growth.

France’s impasse at this point is partly due to the gradual collapse of its industrial structure, which has become an essentially service-based economy. In the 1980s, the secondary industry accounted for 23% of GDP. Currently, its weight is only 12%, even 10% when manufacturing alone is taken into account.

As part of the reconstruction plan and the “France 2030” investment plan, the government has announced in recent months a series of measures in support of reindustrialization and the liberation of billions of euros. But the process is long. Last December, Plan High Commissioner François Bayle also supported the return of production of certain currently imported commodities to France. Before making a list of 50 products he wants to engage in reflection with the sectors involved.

Cost competitiveness

Once the start of the re-industrialization process is confirmed, it will be possible to reduce France’s dependence on foreign countries and, as a result, restrict imports. You can also increase exports by producing competitive products. Today, with the exception of some surplus sectors such as luxury goods, food and aviation, French products are rarely exported.

Goods produced in France are often considered too expensive in terms of quality. A well-known formula is that France exports Spanish goods at German prices. For this reason, in recent years, several measures have been taken to improve the cost competitiveness of French companies, and various rate reductions (CICE, liability agreements, etc.) have been approved.

Recently, the government has decided to reduce the production tax by 10 billion euros. Since then, some candidates for the presidential election have also promised to reduce these taxes, which are considered unfair, in order to make businesses more competitive. This is not only the case with Valérie Pécrès, but also the case with Marine Le Pen and Eric Zemmour.

Production tax cuts, “necessary but not enough” measures

But is the reduction in production taxes really effective in rebalancing France’s trade balance? According to economist Emmanuel Combe, vice president of competition authorities, it all depends. “It is necessary to reduce production costs, but it is not a sufficient condition to be competitive,” he explained about the BFM business.

And, for good reason, a country’s competitiveness and its export capacity are based not only on the price of its products, but also on its quality and the level of innovation it contains. In the case of Emmanuel Combe, French companies need to take advantage of production tax cuts to upgrade their products in order to differentiate themselves.

“Looking at the functioning sectors such as aviation, agrifood, and luxury, what is it based on? Non-price competitiveness. (…) I guess we need to lower costs to gain cost competitiveness. You shouldn’t. No, it says, “Let’s lower the cost of investing more in education, research and development, quality to develop non-price competitiveness. We know it works. Be careful not to tell half the story, “Emanuel Com emphasizes.

According to him, the challenge is to lower costs by lowering the price of the product, rather than increasing the quality. “Ultimately, it’s not the selling price of the product, but the ratio of quality to price,” he claims. A Rexecode study published in March 2021 also showed that France has lowered prices for some products in recent years, but their quality is even worse. As a result, these products eventually lost their quality-to-price ratio, making them unattractive for export.

“Reversing the trend of 30 years”

For Bruno Le Mer, it will take 10 years to reduce France’s trade deficit. “This is a problem that reverses the trend of 30 years,” the Minister of Economy argued at the beginning of January, and at the same time blamed the government’s “fiscal policy, economic policy” relocation by 2017. ..

“The major industrial groups were headquartered in France, but moved their subsidiaries and jobs abroad,” he explained. “62% of the industrial work of these large French groups is abroad, 38% in Germany and 26% in Italy,” the minister designated. To reverse this trend, Bercy’s tenants favored further reductions in production taxes and a reduction in the social security burden on salaries above 2.5 Smic during Emmanuel Macron’s second five-year term. I said there is.

“When I look at engineers, it could cost up to three times as much in France as in Germany because of the removal of the social security cap,” he said. Table problem “.

Bruno Le Mer also said he would like to work with manufacturers on training policies, especially the Apprentice Training Center (CFA), to make up for the lack of skills in French territory. “Industry must regain its brilliance, fame and make it desirable,” the minister exclaimed.