Germany’s industrial relationship with China is entering a fundamentally different phase. On August 8, leading German business associations intensified pressure on Chancellor Friedrich Merz’s government, calling for faster and stronger European trade-defence measures against Chinese competition. For decades, German industry was among the strongest advocates of open trade with China, partly because companies feared losing access to one of their most important international markets. That position is now changing. The reason is not a rejection of free trade, but a shift in the economic structure underlying German-Chinese relations. China is increasingly producing domestically what it once imported from Germany while simultaneously expanding exports of competing industrial products into Europe and other global markets.
The Trade Balance Reveals a Structural Shift
The numbers illustrate how quickly the relationship has changed. In 2025, China again became Germany’s largest trading partner by total goods turnover, but the composition of that trade became significantly less favourable for German industry. German imports from China increased by 8.8% to €170.6 billion, while German exports to China declined by 9.7% to €81.3 billion. The resulting bilateral trade deficit approached €90 billion, expanding by roughly €22 billion in a single year. The trend continued during the first five months of 2026, when German imports from China increased by another 6.2%. More importantly, these imports increasingly consist of computers, electrical and optical products, machinery, and other technologically advanced industrial goods rather than primarily low-cost consumer products.
At the same time, German companies are losing market share in sectors that have traditionally supported the country’s export model. Between 2012 and 2024, Germany’s share of automobile imports into other EU countries declined from 33% to 29%, while China’s share increased from around 1% to 4%. In machinery, Germany’s share fell from 30% to 28%, while China’s increased from 7% to 10%. The pattern is even more visible in chemicals, where Germany’s share dropped from 22% to 18% while China’s expanded from approximately 2% to 6%. These figures suggest that German and Chinese export structures are becoming increasingly similar, turning what was once a complementary trading relationship into direct industrial competition.
China Is Moving Up the Industrial Value Chain
The transformation has been building for years. Germany benefited enormously from China’s urbanisation, factory construction, infrastructure expansion and growing middle class. German manufacturers supplied vehicles, machinery and chemicals to a rapidly expanding economy, while China supplied Germany with inexpensive manufactured goods and components. However, Chinese industrial policy steadily increased domestic technological capabilities. The share of goods assembled in China primarily from imported components declined from approximately 55% of Chinese exports in 2001 to only 20% in 2024. More value is now created domestically, and Chinese companies increasingly control larger parts of their supply chains.
The automotive industry demonstrates the consequences. German manufacturers held powerful positions in China for decades, but the transition toward electric vehicles changed the competitive landscape. Chinese companies built extensive battery supply chains, developed broad ranges of electric vehicles and combined competitive pricing with increasingly sophisticated software. German companies are therefore confronting Chinese competitors twice: first inside China, where their historical market share is under pressure, and increasingly inside Europe itself. Similar developments are emerging in machinery, energy equipment and chemicals.
Why German Industry Wants Faster Protection
German industry argues that competition is not occurring under equal conditions. Business associations estimate that the combination of government support, pricing pressure and other structural advantages can allow some Chinese suppliers to offer products at prices 30–40% below German competitors. Broader international research also points to substantial differences in state support. Between 2005 and 2024, major Chinese industrial companies received government support equivalent to roughly three to eight times the level received by comparable companies in OECD economies relative to revenue. Such support may have contributed substantially to the expansion of Chinese companies’ global market share.
German businesses are therefore focusing less on universal tariffs and more on faster application of existing European trade-defence mechanisms. Current anti-dumping and anti-subsidy investigations require detailed evidence and can take many months or more than a year. In rapidly changing industries, that period can be decisive. By the time protective measures are introduced, European producers may already have lost orders, reduced capacity or exited the market. Industry groups consequently want shorter investigations, earlier intervention and broader assessments of connected product categories and supply chains.
Europe Faces a Difficult Industrial Trade-Off
Stronger protection carries its own risks. China remains both a competitor and a critical supplier. European companies depend on Chinese batteries, components, machinery and selected raw materials. Broad restrictions could protect one manufacturer while raising costs for dozens of downstream companies. Retaliatory measures could also affect German vehicles, machinery and chemicals sold in China. For this reason, the most probable strategy is selective rather than comprehensive protection: faster investigations, targeted tariffs, stricter origin requirements and incentives encouraging Chinese companies to manufacture inside Europe.
The debate therefore extends far beyond bilateral trade. Germany must decide what industrial capacity it wants to preserve and how much it is prepared to pay for that objective. Trade protection may provide European manufacturers with time, but it cannot solve high energy costs, slow permitting, infrastructure weaknesses, labour shortages or regulatory complexity. The central challenge for Berlin and Brussels will be combining targeted protection with domestic reforms that improve competitiveness.
Germany’s shift matters because it could change the balance of European policy. If Berlin joins France, Italy and other advocates of stronger trade defence, the European Union could move toward a more coordinated industrial strategy. The old model assumed that access to China was essential for German prosperity. The emerging model recognises a more complicated reality: China is simultaneously a supplier, a customer and a direct industrial competitor. European policy will increasingly have to manage all three roles.