10.06.22 Review

The Law Against Trading with Autocracies: most German economists consider it inconvenient, but necessary

On January 1, 2023 a new German law, the Supply Chain Due Diligence Act (LkSG), will take effect and require companies with over 3,000 employees (1,000 employees as of 2024) to analyze their supply chains with regard to potential violations of human rights and environmental law.

78% of the economists polled by the German ifo Institute and Frankfurter Allgemeine Zeitung believe that the LkSG will make international business harder for the German companies affected: they will face increasing bureaucracy, rising transaction costs, and difficulties in obtaining the information required under the law.

At the same time, 57% of the respondents believe that Germany should limit trade with autocracies, as they are associated with geopolitical risks and often prove to be unreliable partners.

Thus, Russia's aggression against Ukraine initiated fundamental changes in the trade policy of Europe's largest economy, which may be followed by other nations.