Restricting Technology Leakage: Why Germany Needs an Outbound Investment Screening Mechanism

Abstract

In a world marked by geopolitical competition, the United States is taking measures to restrict the diffusion of technologies it considers essential to its security and economy. To make its regime more effective, Washington will pressure its allies to align their policies. Germany, due to its international economic integration, risks being squeezed between American demands and possible Chinese retaliation. Its best option would be to establish an EU regime for screening outbound investment. Failing that, Berlin needs to set up a national mechanism based on the following points: Germany needs to identify which existing and emerging technologies will be critical to national security and economic-technological leadership. To this end, the government should establish a scientific advisory council and consult widely. Restricting technology transfers comes with short-term economic costs, but it may also enhance longer-term national security. Policies should be sensitive to these trade-offs. Berlin should prepare for retaliation by countries affected by technology-focused investment restrictions. It also needs to strengthen defenses against industrial espionage.
Any policy on outbound investment should be embedded in a broader national economic security strategy to be maximally effective. This should include inward investment restrictions and export controls.