China’s transformation from impoverished nation to the world’s second-largest economy has already reshaped global trade. Its accelerating push into higher-end technologies is generating a faster, more disruptive “second China shock.” Countries that had years to adapt the first time around — notably the US and UK — now face a quicker upheaval; Germany, built on an export-driven industrial model, is among the most exposed.
The shift became visible in 2023 when Chinese electric vehicles began selling across Europe. Initially written off as unlikely to unsettle German incumbents, brands such as BYD quickly gained traction in Germany and other markets. The arrival of competitively priced EVs helped trigger profit warnings from major German carmakers, including Volkswagen, BMW and Mercedes-Benz, as they face tougher competition both at home and in China. Eurostat data show German vehicle exports to China have plunged by roughly two-thirds since 2022.
The pressure has spread beyond autos. In the most recent year German goods exports to China fell 9.3% to €81.8 billion — the lowest level in a decade — even as imports from China rose. Economists and trade analysts increasingly view the relationship as shifting from complementary to directly competitive, with Chinese rivals taking ground in machinery, chemicals and power-generation equipment.
A New York–based research group, the Rhodium Group, described German outbound trade with China as entering a “structural decline” in a paper titled Germany’s “China Shock” Revisited. Its authors found that about a quarter of German exports to China vanished over three years, and noted that China slipped from being one of Germany’s top one or two export destinations to fifth place in 2024, with further declines projected.
Chinese manufacturers are not only contesting the China market: they are aggressively pursuing third markets across Asia, Latin America and Africa, often undercutting German suppliers on price. That expansion threatens German strengths in markets where proximity and historic trade ties have been advantages, including within the EU, the UK and Turkey.
Chancellor Friedrich Merz’s first official trip to Beijing comes as he tries to walk a difficult line: reassuring German firms about China’s continuing importance while demanding solutions to long-standing complaints over restricted market access, industrial overcapacity and large state subsidies. Relations were further strained by pandemic-era supply shocks that exposed Germany’s dependence on Chinese parts and raw materials, prompting some firms to partially derisk their supply chains.
A central strategic worry for Berlin is dependency on critical inputs. China produces about two-thirds of the world’s rare earths and accounts for roughly 90% of refining capacity; Beijing’s export curbs on certain minerals last year disrupted auto and other industrial supply chains in Europe and the US. German officials are expected to press for EU-backed remedies — such as anti-dumping and anti-subsidy duties — rather than attempting to resolve systemic imbalances through bilateral talks alone.
Brussels is already moving to bolster Europe’s economic defenses. At a recent competitiveness summit leaders backed a tougher industrial agenda, including a preference for European suppliers in public procurement and stepped-up measures to counter unfair competition. The European Commission has opened investigations and applied trade-defense instruments targeting distortions linked to Chinese industrial policy, while also pursuing trade agreements with partners such as India and key Latin American economies to widen market options for European exporters.
Analysts argue that diversification must be paired with coordinated defensive steps. Experts warn that simply opening new markets will not be enough unless like-minded partners quietly align policies to safeguard strategic industries without appearing to single out China. Without credible threats of market restrictions, they say, Beijing lacks incentives to change export behavior, leaving German firms to battle competitors that operate under different rules.
The scale of the challenge has prompted uneasy comparisons with past industrial declines elsewhere. Some German sectors are watching rapid Chinese advances with alarm; political rhetoric in Berlin has hardened, but industry groups stress that rhetoric must be followed by concrete measures to stop further market-share erosion and to protect jobs.
Merz’s mission appears aimed at managed stabilization: pressing China on access and dependencies, securing EU support for defensive measures, and accelerating efforts to diversify export markets. The results of that strategy will help determine whether Germany can adapt its industrial model to a more contested global economy or faces deeper structural setbacks.
Edited by Ashutosh Pandey
Editor’s note: This article, originally published on February 18, has been updated to reflect Chancellor Merz’s visit to China.