German Industry Pushes Berlin Toward a Tougher China Trade Policy

Germany’s trade deficit with China expanded by approximately €22 billion in 2025 to €89.3 billion, as German imports from China rose 8.8 percent while exports to the Chinese market declined 9.7 percent. The divergence reflects more than a cyclical change in trade flows. Chinese manufacturers are increasingly competing with German companies in machinery, electrical equipment, clean-energy products and automobiles—sectors that have historically formed the foundation of Germany’s industrial economy. At the same time, slow European growth, high energy costs and heavy regulatory expenses have reduced the ability of German manufacturers to compete purely through price. China has consequently changed from being primarily a major export market and production base for German companies into a direct competitor at home and in third-country markets.

Concerns about state support have strengthened the case for intervention. An OECD study covering 2005 to 2024 found that Chinese companies received, on average, three to eight times more government support relative to revenue than firms in OECD economies, depending on the comparison region. The organization estimated that subsidies could explain almost 60 percent of the global market-share gains recorded by expanding Chinese companies, although it also concluded that the support did not necessarily produce corresponding improvements in productivity or profitability. Germany’s BDI industry association separately estimates that subsidies and an exchange rate it considers undervalued allow some Chinese suppliers to price products 30 to 40 percent below German competitors. Beijing disputes these arguments, maintaining that its industrial strength results mainly from innovation, economies of scale, integrated supply chains and long-term private-sector investment rather than unfair support.

The automotive sector illustrates why German companies have become less willing to maintain the previous approach. Volkswagen and other German manufacturers are losing market share to domestic brands such as BYD inside China, while Chinese producers are simultaneously expanding across Europe. European sales by BYD, Chery and Leapmotor in June 2026 were between three and six times their levels a year earlier, while SAIC’s sales rose by more than 50 percent and Geely’s increased by more than 11 percent. The EU already applies additional countervailing duties of between 7.8 percent and 35.3 percent to Chinese-made battery-electric vehicles, but plug-in hybrids are not covered by the same measures. Volkswagen CEO Oliver Blume has therefore called for a more comprehensive level playing field and “Made in Europe” requirements that would encourage companies to use a larger share of European-produced components.

The political importance of Germany’s changing position extends well beyond the bilateral relationship. The German auto industry association VDA opposed the EU’s electric-vehicle tariffs in 2024, but it is now reviewing whether its stance should change. Merz has instructed his cabinet to develop proposals addressing the EU’s trade imbalance with China, while industrial groups want Brussels to shorten investigations, apply safeguards more quickly and examine related product categories together in anti-dumping cases. If Germany joins France, Italy and Spain in supporting stronger measures, the balance inside the EU could shift decisively toward more active industrial protection. EU-China discussions scheduled for October will therefore be a critical test of whether the dispute can be managed through negotiated commitments or moves toward a broader package of restrictions.

A tougher approach would nevertheless create substantial financial risks for both sides. New tariffs or local-content rules could pressure Chinese exporters’ margins and encourage more Chinese companies to manufacture inside Europe, but they could also increase costs for European businesses that depend on Chinese components. Retaliatory action from Beijing would be particularly damaging to German automakers, industrial-equipment producers and chemical companies with large sales or investments in China. Berlin must consequently distinguish between targeted trade enforcement and indiscriminate protectionism. The most likely outcome is not economic separation, but a more defensive relationship in which access to the European market becomes increasingly conditional on local investment, subsidy transparency and reciprocal treatment.