Germany’s long-standing policy of cautious engagement with China, often characterized by a fear of economic retaliation against its powerful export sector, is undergoing a significant recalibration. Berlin, once a blocker of tougher European Union action against Beijing’s trade practices, is now actively pushing for stronger defensive mechanisms to safeguard its industrial base.
Berlin’s Policy Pivot
The shift became evident last week when Chancellor Friedrich Merz, alongside French President Emmanuel Macron, jointly addressed European Commission President Ursula von der Leyen. Their letter advocated for a novel tool to disconnect a trading partner from the EU’s single market if ‘unfair practices continue.’ This proposed ‘kill-switch,’ clearly targeting Beijing, was described as essential against nations that ‘deliberately seek to undermine … fair market conditions by political or economic means.’ China’s Commerce Ministry swiftly warned Europe would ‘suffer the consequences’ if such a plan were adopted, a warning timed with crucial EU-China trade talks in Beijing.
Noah Barkin, a senior adviser with Rhodium Group’s China practice, noted that the escalating threats to Germany’s export powerhouse ‘have convinced Merz and his closest advisers that the benefits of action outweigh the costs of inaction.’ This marks a departure from the pre-COVID era when German industry largely benefited from China’s economic ascent, with both economies rising in tandem.
Export Decline and Import Surge
Since 2021, China has dropped from Germany’s second-largest export market to its ninth, according to data from Germany Trade & Invest for the first half of 2026. This decline coincides with Chinese competitors rapidly closing technology gaps, benefiting from lower costs and state subsidies. The pressure is acutely felt across Germany’s automaking, precision engineering, and chemicals industries.
German vehicle manufacturers, in particular, have experienced a substantial sales drop in China, once their second-largest market. Rhodium Group data indicates a 66% plummet in German car exports to China between 2022 and 2025. Concurrently, a new wave of Chinese electric vehicle (EV) manufacturers is intensifying rivalry in major markets, including Europe, leading to layoffs and potential factory closures for German brands. Domestically, imports of new Chinese-made cars in Germany surged by 121% in the first seven months of the year, as reported by Destatis, the federal statistics agency. Overall, Chinese-made vehicles constituted nearly 14% of total vehicle imports.
Andreas Mischer, an associate fellow at the Mercator Institute for China Studies (MERICS), observed that after continuous market share losses in China, the rivalry ‘seems to be hitting their business within the European automotive market.’ Mischer highlighted the considerable influence of Germany’s powerful automotive lobby as a key factor in Berlin’s ‘shifting attitude toward trade defense instruments.’
Industry Demands and EU Responses
The sentiment for a tougher stance is widespread among German business leaders. Oliver Richtberg, head of foreign trade at VDMA, Germany’s mechanical engineering association, starkly stated in August, ‘We are currently being deindustrialized through unfair measures — and most companies are no longer willing to accept this.’
The broader EU’s goods deficit with China reached approximately €360 billion ($402 billion) last year, equivalent to €1 billion per day, and continued to widen in the first half of 2026, according to Eurostat. While Brussels has been addressing the dumping of cheap Chinese goods, other proposed measures, such as the EU’s Industrial Accelerator Act, face scrutiny. Proposed in March, this act aims to attract manufacturing investment back to Europe by favoring EU-based firms in public contracts and subsidies. However, the European Automobile Manufacturers’ Association (ACEA) warned last month that the draft act does little to counter the threat from cheaper Chinese rivals, arguing that local production incentives must be substantial enough to ‘cancel out the extra cost of producing locally.’
Strategic Concerns and Trade Negotiations
A primary concern for Berlin is China’s potential imposition of new export curbs on rare earth minerals and the magnets derived from them. China’s near-monopoly on these essential elements is critical for German automotive, renewables, and defense manufacturing. Bloomberg recently cited unnamed German officials suggesting that a new EU ‘kill-switch’ could serve as a ‘second-strike weapon’ if Beijing were to block such exports. Brussels is also reportedly considering unilateral limits on Chinese hybrid car exports to the EU.
In a move that could potentially avert an open confrontation, the EU and China reached a ‘shared understanding’ last week during trade talks in Beijing. EU Trade Commissioner Maros Sefcovic, who led the European delegation, indicated that this agreement could halve Chinese exports of hybrid and plug-in hybrid vehicles to the EU. Reports suggest the deal would cap such imports at 350,000 vehicles annually, with a 6% increase each year over four years. Hybrid-electric cars accounted for nearly 37% of all new cars registered in the EU from January to August, according to ACEA data.
MERICS calculated that the EU represents a more critical export market for China than the US, with Chinese exports to the EU reaching $254 billion (€354 billion) in the first half of the year, compared to $172 billion to the US. This imbalance could provide EU negotiators with greater leverage as they seek to protect Europe from China’s latest export glut while striving to avoid a full-blown trade war. As MERICS’ Mischer noted, ‘The EU has more leverage than it sometimes thinks.’
