Germany recalibrates China policy as import pressures eclipse export gains

Germany’s cautious stance on China is shifting after years of reluctance to confront Beijing over what the EU calls unfair trade practices.

In recent months, Berlin’s fear of Chinese retaliation that could harm German exporters has given way to a willingness to adopt a tougher line.

Last week, Chancellor Friedrich Merz and French President Emmanuel Macron jointly urged European Commission President Ursula von der Leyen to create a new tool that could cut a trading partner off from the EU single market if unfair practices persist. The letter, clearly aimed at Beijing, warned that such a measure was necessary against countries that “deliberately seek to undermine … fair market conditions by political or economic means.”

Germany under pressure

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The cost of standing still

According to Noah Barkin, a senior adviser at the Rhodium Group’s China practice, the threats to Germany’s export powerhouse have convinced Merz and his inner circle that the benefits of action outweigh the costs of inaction.

Prior to the COVID pandemic, the two economies grew in tandem, and German industry profited from China’s rise. Since 2021, however, China has slipped from Germany’s second‑largest export market to its ninth, based on data from Germany Trade & Invest for the first half of 2026.

Chinese competitors have rapidly closed the technology gap and enjoy lower costs and state subsidies, creating pressure especially in Germany’s automotive, precision‑engineering and chemicals sectors.

Why Berlin’s China policy is changing

German vehicle makers have suffered a sharp sales decline in China, once their second‑largest market. German car exports to China fell by 66 % between 2022 and 2025, according to Rhodium Group data.

Major German brands now face intense competition from a new wave of Chinese electric‑vehicle manufacturers in other major markets, including Europe, prompting layoffs and possible factory closures.

In Germany alone, imports of new Chinese‑made cars rose 121 % in the first seven months of the year, according to Destatis, the federal statistics agency. Chinese‑made vehicles accounted for nearly 14 % of total vehicle imports.

“After continuously losing market share in China … it [the rivalry] seems to be hitting their business within the European automotive market,” said Andreas Mischer, an associate fellow at the Berlin‑based Mercator Institute for China Studies (MERICS), in an interview with DW.

Mischer noted that pressure from Germany’s powerful automotive lobby was a key factor in Berlin’s “shifting attitude toward trade‑defence instruments.”

Industry pressure grows for trade defenses

Among the many German business leaders who have called for a tougher stance recently, Oliver Richtberg, head of foreign trade at VDMA, Germany’s mechanical‑engineering association, was perhaps the most blunt:

“We are currently being deindustrialized through unfair measures — and most companies are no longer willing to accept this,” Richtberg told *Welt am Sonntag* newspaper in August.

Eurostat figures show the EU’s goods deficit with China reached around €360 billion ($402 billion) last year — roughly €1 billion per day — and widened again in the first half of 2026.

While Brussels has pushed back against dumping of cheap Chinese goods, a separate industrial‑protection law and other anti‑coercion measures face opposition from Beijing and domestically.

Business groups question industrial policy proposals

The EU’s Industrial Accelerator Act, proposed in March, aims to pull manufacturing investment back to Europe by favoring EU‑based firms in public contracts and subsidies.

Foreign investments in key sectors would only be approved if European partners retain majority control, a provision that Beijing has labeled discriminatory.

How to dismantle China’s stranglehold on raw materials?

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The European Automobile Manufacturers’ Association (ACEA) warned last month that the draft act does little to counter the threat from cheaper Chinese rivals. In a position paper, it said the incentive to produce within the bloc must be large enough to “cancel out the extra cost of producing locally.”

Berlin’s chief concern is that China could impose new export curbs on rare‑earth minerals and the magnets made from them. China dominates these elements, which are essential for German automotive, renewable‑energy and defence manufacturing.

Unnamed German officials cited by Bloomberg last week said a new EU “kill‑switch” could serve as a “second‑strike weapon” if Beijing blocked those exports. Brussels is also considering unilateral limits on how many hybrid cars China can export to the EU, according to the same Bloomberg report.

EU weighs additional trade measures

To avoid an outright confrontation, the EU and China reached a “shared understanding” last week at the EU‑China trade talks in Beijing that could cut Chinese exports of hybrid and plug‑in hybrid vehicles to the European Union by more than half.

That could affect several million vehicle exports from China to the EU over the next few years, said EU Trade Commissioner Maros Sefcovic, who led the European delegation.

Overall, new hybrid‑electric cars in the EU reached nearly 37 % of all new cars registered from January to August, according to ACEA data.

MERICS calculated that the EU is a more critical export market for China than the United States. In the first half of the year, Chinese exports to the EU totalled $254 billion (€354 billion), versus $172 billion to the US.

This could give EU negotiators a firmer hand as they seek to avoid a trade war while protecting Europe from China’s latest export glut.

“The EU has more leverage than it sometimes thinks,” MERICS’s Mischer told DW.

Edited by: Tim Rooks

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