China’s rapid rise from poverty to the world’s second-largest economy reshaped globalization, and its push into high-end technology is accelerating. Countries that had decades to adjust to the first “China shock” — notably the US and UK — now face a quicker, more disruptive second wave. Germany, with its export-led economy, is among the most exposed.
The latest sign came when Chinese electric vehicles (EVs) began arriving across Europe in 2023. Initially dismissed as unlikely to dent German incumbents, Chinese brands have since become a disruptive force in European markets. Sales of models such as BYD’s surged in Germany, and German automakers including Volkswagen, BMW and Mercedes-Benz have issued profit warnings as competition intensifies at home and in China. German vehicle exports to China have fallen sharply — Eurostat data shows a two-thirds drop since 2022.
The competitive pressure has widened beyond cars. Last year German goods exports to China fell 9.3% to €81.8 billion, their lowest in a decade, while imports from China rose. Researchers and analysts increasingly describe Germany’s trade relationship with China as shifting from complementary to directly competitive.
A New York-based think tank, the Rhodium Group, warned this month that Germany’s outbound trade with China has entered a “structural decline.” Its paper, “Germany’s ‘China Shock’ Revisited,” found that Chinese rivals are taking market share in machinery, chemicals and power-generation equipment. Co-author Noah Barkin noted that about a quarter of German exports to China have disappeared in three years. China, once among Germany’s top one or two export destinations, slipped to fifth in 2024 and was forecast to fall further.
The threat is not confined to China. Chinese producers are aggressively targeting third markets in Asia, Latin America and Africa, often undercutting German firms with cheaper offerings. That pattern risks eroding Germany’s competitiveness in markets where it has traditionally performed well due to proximity and trade arrangements, including across the EU, the UK and Turkey.
Chancellor Friedrich Merz’s first official visit to China comes as he must balance reassuring German business leaders about China’s market importance with pressing Beijing on long-standing complaints: limited market access, industrial overcapacity and heavy state subsidies. Both sides have signaled interest in resetting frayed ties, strained further since the pandemic exposed Germany’s reliance on Chinese parts and raw materials and provoked partial derisking from some suppliers.
A central concern for Berlin is strategic dependence on key inputs. China controls roughly two-thirds of rare-earth production and about 90% of refining capacity. Beijing’s export curbs on critical minerals last year disrupted supply chains for autos and other industries in the EU and US. German experts say Merz will likely seek EU-backed measures — anti-dumping and anti-subsidy duties among them — rather than trying to resolve systemic issues solely bilaterally.
The EU is already moving to increase its economic defenses. At a recent competitiveness summit, leaders endorsed a tougher industrial agenda, including a “Buy European” approach to public procurement and measures to counter unfair competition. The European Commission has launched probes and trade-defense steps to tackle market distortions tied to Beijing’s industrial policies. Brussels is also pushing trade talks with partners such as India and important Latin American economies, aiming to open alternative markets for European exporters.
Analysts urge the EU to combine diversification with coordinated defensive measures. Andrew Small of the European Council on Foreign Relations said diversification alone is insufficient: like-minded trading partners must discreetly align to protect strategic industries without appearing to gang up on China. Rhodium warned that without credible threats to restrict access to European markets, China would have little incentive to curb exports, leaving German firms to battle a much larger competitor that does not operate under the same rules.
The scale of the challenge has prompted comparisons with past industrial decline elsewhere, such as Detroit’s long fall from industrial prominence. Some German industries are experiencing alarm with rapid Chinese advances; political rhetoric in Berlin has grown tougher, but industry groups and researchers say action must follow rhetoric to prevent further erosion of market share and to stabilize employment.
Merz’s mission therefore looks set to be a managed stabilization: pressing Beijing on market access and supply-chain dependencies while seeking EU backing for defensive measures, and pursuing new trade partnerships to diversify markets for German exporters. The outcome will shape whether Germany can adapt its industrial model to a more competitive global landscape or faces deeper structural decline. 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.