Germany's China calculation shifts as import pressures eclipse export benefits

Germany and France want a new EU trade-defense instrument aimed at countries that deliberately undermine fair market conditions through political or economic pressure. The tool would give the European Union a stronger response when ordinary trade measures fail. It matters because Germany is moving away from its earlier caution toward Beijing.

The proposed mechanism could cut a trading partner off from the EU single market if unfair practices continue. That market provides access across the bloc, so losing it would affect a country’s exporters broadly. China’s Commerce Ministry called the proposal a “kill-switch” and warned Europe would “suffer the consequences.”

The letter from Friedrich Merz and Emmanuel Macron came during crucial EU-China trade talks. Brussels is also considering other measures, including limits on Chinese hybrid-car exports. The proposal remains part of a wider debate over how far Europe should escalate without triggering damaging retaliation from Beijing.

China’s importance to Germany’s exports has sharply declined. Before the COVID pandemic, the two economies grew together and German industry benefited from China’s rise. But data for the first half of 2026 placed China as Germany’s ninth-largest export market, down from second place in 2021.

The automotive figures are especially severe. German car exports to China fell 66% between 2022 and 2025, according to Rhodium Group data. German vehicle makers once treated China as their second-largest market. They now face strong competition from Chinese manufacturers at home and in other major markets.

This shift is changing Berlin’s trade calculation. China remains an important economic power, but declining German sales weaken the case for avoiding confrontation at any cost. German officials and business groups increasingly see the costs of standing still as greater than the risks of stronger EU defenses.

Chinese electric vehicles and other manufactured goods are pressuring German companies because Chinese competitors combine lower costs with improving technology and state subsidies. This makes it harder for German firms to compete on price. The pressure is concentrated in industries such as automobiles, precision engineering, and chemicals.

Germany’s car market shows the trend clearly. Imports of new Chinese-made cars rose 121% in the first seven months of the year. They represented nearly 14% of total vehicle imports. Chinese EV makers are also challenging German brands in other major markets, including Europe, while German manufacturers face layoffs and possible factory closures.

The challenge is no longer limited to lost sales in China. German companies are losing market share abroad while facing stronger Chinese competition inside Europe. That combination is pushing industry groups and Berlin toward tougher trade defenses, even though stronger action could provoke retaliation from Beijing.

For years, Berlin blocked a harder EU line because it feared Beijing would retaliate against German exporters. Germany’s export-heavy economy had benefited from China’s rapid growth. Policymakers therefore treated stable commercial ties as valuable, even while the EU criticized China’s unfair trade practices.

That balance has changed as German companies lose ground. China dropped from Germany’s second-largest export market to its ninth. German car exports to China fell 66% between 2022 and 2025, while Chinese vehicles gained ground inside Germany and across Europe. Chinese firms have also narrowed the technology gap and compete with lower costs and state subsidies.

Noah Barkin said these threats convinced Chancellor Friedrich Merz and close advisers that action now outweighs inaction. Pressure from the automotive lobby and other industries reinforces that view. Berlin still worries about Chinese retaliation, especially restrictions on rare-earth exports, but it is increasingly willing to support stronger EU defenses.

German industries pushing Berlin include automaking, mechanical engineering, precision engineering, and chemicals. These sectors face Chinese competitors that have narrowed the technology gap, operate at lower costs, and benefit from state subsidies. Their concerns have grown as Chinese products compete not only in China but also inside Germany and across Europe.

The automotive lobby has been especially influential. German car exports to China fell 66% between 2022 and 2025, while Chinese-made vehicle imports into Germany rose 121% in the first seven months of the year. The mechanical engineering association VDMA has also demanded a harder line. Its foreign-trade chief, Oliver Richtberg, said companies were no longer willing to accept unfair measures.

The European Automobile Manufacturers’ Association, or ACEA, has criticized the EU’s Industrial Accelerator Act for offering too little protection against cheaper Chinese rivals. These business demands are helping shift Berlin toward stronger trade-defense instruments and more willingness to confront Beijing.

Rare-earth minerals and the magnets made from them are essential inputs for German automotive, renewable-energy, and defense manufacturing. Germany’s chief concern is that China could restrict exports of these materials. Because China has a stranglehold on the elements, European producers could struggle to obtain supplies if Beijing imposed controls.

The key mechanism is supply dependence. German factories need these materials for products and equipment, while China occupies a dominant position in supplying them. An export curb could therefore raise pressure on manufacturers or interrupt production. The article identifies this risk as a central reason Berlin is considering stronger trade defenses.

Unnamed German officials described a proposed EU “kill-switch” as a possible “second-strike weapon” if Beijing blocked rare-earth exports. That language suggests the tool could be held in reserve rather than used immediately. The risk is also pushing Brussels to consider limits on Chinese hybrid-car exports.

These tools change competition by altering price, supply, or market access. Tariffs make imported goods more expensive. Import limits restrict how many products can enter. Subsidies reduce a producer’s costs or support investment. Access to the EU single market determines whether a company can sell freely across the bloc, making it a particularly broad form of leverage.

The article describes Chinese firms as benefiting from lower costs and state subsidies. It also discusses EU efforts to counter cheap Chinese goods, favor European firms in public contracts and subsidies, and possibly limit Chinese hybrid-car exports. A proposed kill-switch would go further by removing single-market access when unfair practices continue.

These measures can protect European producers, but they also risk retaliation. China has already warned Europe over the kill-switch proposal. Berlin is weighing that danger against a widening EU goods deficit, declining German exports to China, and rising Chinese competition within Europe.