German Chancellor Warns of Trade Imbalance with China During First Beijing Trip
During his inaugural visit to Beijing, Germany’s Chancellor Friedrich Merz expressed concerns about the significant trade imbalance between Germany and China, calling it not healthy.
Key Highlights of the Trade Imbalance
– Trade Discrepancy: In the previous year, German imports from China surpassed exports by more than double, a situation that Merz aims to address. He specifically mentioned the trade deficit had quadrupled over the last five years.
– Economic Impact:
– Imports: In 2025, goods valued at €170.6 billion (approximately £148.8 billion; $200.9 billion) were imported from China, marking an 8.8% annual increase.
– Exports: Conversely, German exports to China experienced a decrease of 9.7%, totaling €81.3 billion.
– Sectoral Effects: Jürgen Matthes from the German Economic Institute noted that this imbalance is eroding the core of German industry, particularly affecting the automotive, machinery, and chemical sectors. He attributed these distortions largely to massive Chinese subsidies and currency undervaluation.
China’s Position on Trade Practices
– In response to criticisms regarding its subsidy policies, China asserts that they are transparent and compliant with international trade regulations.
– China also maintains its commitment to a floating exchange rate regime, insisting that it is based on market dynamics yet allows for necessary management.
Broader Economic Context
– The escalating trade deficit is being referred to as the latest China shock, which was exacerbated by the pandemic and geopolitical events, such as Russia’s invasion of Ukraine. According to Bruegel, a Brussels-based think tank, these factors have led to rising production costs in Europe.
– Simultaneously, China has entered a deflationary period due to over-investment in manufacturing, creating an oversupply of goods. European leaders are now grappling with how to counteract the influx of inexpensive Chinese products.
European Strategies and Future Outlook
– Amidst this backdrop, there is apprehension in Germany—Europe’s economic powerhouse—especially as its automotive sector transitions to electric vehicles, a market where China holds a strong lead.
– Business organizations in Germany have urged Merz to convey a strong message during his Beijing visit, emphasizing the necessity to tackle competitive distortions and the restrictions related to critical rare earth exports.
– Despite the challenges, Merz announced that China plans to purchase up to 120 aircraft from Airbus.
Addressing the Evolving Trade Landscape
– The current geopolitical climate has shifted Merz’s free-trade outlook, as he acknowledges the intricacies of the relationship with China. We want to further strengthen our partnership… However, we will, of course, protect our interests, he stated, emphasizing that attempting to decouple from China would be a misstep.
– The EU is actively pursuing numerous anti-dumping cases against China and is considering policies to bolster domestic production while reducing foreign reliance.
In conclusion, the looming trade imbalance between Germany and China presents both challenges and opportunities. As Chancellor Merz navigates this complex landscape, he aims to foster a trade relationship that safeguards Germany’s economic interests while engaging with one of its most significant trading partners. The path forward requires a careful balance between openness and protectionism in a world where the rules-based order is increasingly under scrutiny.