Merz Calls for Plaza Accord Revival to Tackle Chinese Trade Imbalances

Trade tensions between the European Union and China are intensifying. On June 16, EU Trade Commissioner Maros Sefcovic stated that the EU’s imbalanced trade relationship with China had reached a stage requiring a reset. Shortly thereafter, German Chancellor Friedrich Merz criticized Beijing for what he described as unfair trade practices.

Speaking in Brussels after an European Council meeting, Merz accused China of flooding markets with heavily subsidized products. He also claimed that the Chinese currency was undervalued by roughly 30%, rendering its goods artificially cheaper on the world stage. Merz referenced the Plaza Accord as a potential model for addressing the problem.

The Plaza Accord, signed in 1985 among the United States, Japan, the United Kingdom, Germany and France, stipulated that Japan would increase the value of its currency, the yen, relative to the US dollar.

The five signatories also agreed to cooperate on foreign‑exchange interventions aimed at weakening the US dollar, which had surged sharply in the early 1980s, thereby eroding the global competitiveness of American goods.

The yen appreciated rapidly after the accord, climbing about 46% against the dollar by 1986. This appreciation helped avert the need for protectionist measures against Japan.

Nevertheless, the yen’s surge had profound repercussions for Japan, a development that Chinese policymakers appear keenly aware of.

For instance, the yen’s rise was widely regarded as a key factor behind the Japanese asset‑price bubble of the late 1980s. The subsequent collapse of that bubble precipitated what came to be known as Japan’s “lost decades” of economic stagnation, a pattern that has defined its economy ever since.

Chinese policymakers view the present trade tensions with the West as reminiscent of the fraught US‑Japan relationship from previous decades. Numerous critiques of China’s growth model echo the grievances that were once directed at Japan.

These criticisms centered on Japan’s sizable trade deficit with the United States and alleged unfair trade practices that disadvantaged American manufacturers. Notably, the US accused Japanese semiconductor and electronics firms of dumping products on the US market at prices below production costs.

Consequently, China does not regard the Plaza Accord as a mutually advantageous arrangement. Instead, it perceives the agreement as a US‑driven effort to undermine Japan’s economy, marking the onset of diminished competitiveness in Japanese manufacturing—a narrative frequently echoed by Chinese state media.

In 2018, Xinhua, the Chinese state news agency, characterized the Plaza Accord as responsible for Japan’s economic woes. The same argument appeared in a recent Global Times editorial, a tabloid overseen by the Chinese Communist Party’s flagship newspaper, the People’s Daily.

The editorial framed the accord as an instance of Western economic coercion and political pressure rather than a template for international cooperation.

Coming to blows

Merz’s statement may not have been intended as a direct call for the EU to curb the Chinese economy. However, given Chinese policymakers’ sensitivity to the adverse effects the Plaza Accord had on Japan, Beijing is likely to interpret the remarks as such.

In recent years, China has responded forcefully to what it perceives as external attempts to restrict its economic competitiveness.

It has taken proactive measures against the United States in response to tariffs and other restrictions on Chinese goods, as well as to former President Donald Trump’s proposed Mar‑a‑Lago Accord, which aims to depress the US dollar’s value to boost American exports.

For example, on June 22, China added ten additional US firms to its rare‑earths export control list, responding to US restrictions on Chinese entities such as the electric‑vehicle manufacturer BYD.

The Chinese Ministry of Commerce stated that the measures were a reaction to what it termed the “US government’s malicious practices,” adding that they were taken to safeguard national security and interests.

Merz’s remarks expose Europe to comparable responses. Notably, such actions could tighten European access to Chinese rare‑earths—critical components in many modern military technologies—and would impede the EU’s efforts to rearm amid Russian aggression.

Unlike Washington, Brussels has been reluctant to initiate an open trade conflict with Beijing. Consequently, China’s most probable response to tensions with Europe will likely follow its established pattern of engaging individual member states bilaterally rather than confronting the EU as a whole—a strategy it has employed to counter previous EU attempts to adopt a unified stance toward China.

It is clear that the EU‑China relationship is entering a more contentious phase. As China strives to preserve its global manufacturing dominance and advance in key technologies that were once the exclusive domain of advanced European economies, these differences are poised to intensify.

Tom Harper is lecturer in international relations, University of East London

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