China Calculation on Germany Shifts as Import Pressures Erode Export Gains

Germany resisted tougher measures against China for a long time, fearing retaliation. But mounting pressure on key industries has pushed Berlin and Paris to seek stronger EU trade defense tools to protect their industrial base.

Why does Germany support tougher EU trade defense against China?

13/10/2026 13 October 2026 Germany has long resisted tougher measures against China for fear of retaliation. But increasing pressure on key industries has prompted Berlin and Paris to seek stronger EU defense powers to protect their industrial base.

Germany's cautious approach towards Beijing is failing. For years, Berlin has blocked a tougher policy on what the EU describes as China's unfair trade practices.

In the past few months, that caution — fear of Chinese retaliation that could hurt German exporters — has given way to a willingness to escalate.

Last week, Chancellor Friedrich Merz and French President Emmanuel Macron jointly wrote to European Commission President Ursula von der Leyen seeking new tools to cut a trading partner out of the EU's single market if unfair practices continue.

The letter, clearly aimed at Beijing, warned that action was necessary against countries that "deliberately seek to undermine fair market conditions by political or economic means."

China's Ministry of Commerce warned that Europe would "suffer the consequences" if it adopted such a plan, which coincided with key EU-China trade talks in Beijing last week.

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Noah Barkin, senior adviser at research consultancy Rhodium Group in China, told Deutsche Welle that the German export powerhouse's threats "have convinced Marz and his closest advisers that the benefits of action outweigh the costs of inaction."

Before the Covid pandemic, the two economies grew in tandem, and German industry benefited from China's rise.

However, as of 2021, according to German Trade and Investment data for the first half of 2026, China has fallen from Germany's second largest export market to its ninth.

Chinese competitors have quickly filled the technology gap, benefiting from much lower costs and government subsidies. This pressure is especially felt in the automotive, precision engineering and chemical industries of Germany.

German automakers have experienced a sharp drop in sales in China, once their second largest market. According to Rhodium Group data, German car exports to China have decreased by 66% between 2022 and 2025.

Big German brands are now facing a new wave of Chinese electric vehicle (EV) production in other major markets, including Europe, which is bringing a wave of layoffs and factory closures.

According to the statistics of the Federal Statistics Agency Destatis, in Germany alone, the import of new cars made in China increased by 121% in the first seven months of the year. Overall, Chinese-made cars account for nearly 14 percent of all car imports.

"After the continuous loss of market share in China ... [competition] seems to be hitting their business in the European car market," Andreas Miescher, a fellow at Berlin-based Mercator Institute for China Studies (MERICS), told DW.

Miescher said pressure from Germany's powerful automotive lobby was key to "changing Berlin's attitude towards trade defense instruments".

Industry pressure for trade defense increases

Among the many German business leaders who have called for a tougher approach in recent months, Oliver Richtberg, head of foreign trade at VDMA, the German mechanical engineering association, was perhaps the most outspoken:

"We are already being de-industrialised through unfair practices – and most companies are no longer willing to accept this," Richtberg told the Volt am Sonntag newspaper in August.

According to Eurostat, the EU's goods deficit with China was around 360 billion euros ($402 billion) last year — a billion euros a day, in fact — and will rise again in the first half of 2026.

As Brussels pushes back against dumping cheap Chinese goods, a separate industry protection law and other anti-importation measures have been challenged by Beijing and at home.

Business groups are questioning industrial policy proposals

The EU Industrial Accelerator Act, proposed in March, aims to bring manufacturing investment back to Europe by supporting EU-based companies in public contracts and subsidies.

Foreign investments in key sectors are approved only if European partners retain majority control, which Beijing has described as discriminatory.

How to eliminate China's chokepoint in raw materials?

The European Automobile Manufacturers Association (ACEA) warned last month that the draft would do little to counter the threat from cheaper Chinese rivals. A topical article states that the incentive to produce within the bloc must be large enough to "cancel the additional cost of local production."

Berlin's main concern was that China could impose new restrictions on exports of rare earth minerals and magnets made from them. China has a stranglehold on these elements, which are essential for German automotive, renewable energy and defense production.

Bloomberg quoted unnamed German officials last week as saying that a new EU lethality switch could be a "second-strike weapon" if Beijing blocks the exports. According to the same Bloomberg report, Brussels is also considering unilateral limits on the number of hybrid cars that China can export to the EU.

Perhaps to avoid such an open confrontation, the EU and China reached a "joint understanding" at EU-China trade talks in Beijing last week that could halve China's hybrid and plug-in hybrid vehicle exports to the EU.

This could affect the export of several million cars from China to the EU over the next few years, according to EU Trade Commissioner Marus Sefkovic, who headed the European delegation.

Overall, new hybrid-electric vehicles in the EU reached around 37 percent of all new vehicles registered from January to August, according to ACEA data.

Meanwhile, MERICS calculated that the EU is a more important export market for China than the US. In the first half of the year, China's exports to the EU were $254 billion, compared to $172 billion to the United States.

That 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 we sometimes think," Miescher of Merix told DW.

Nick Martin is one of DW's team of business reporters.