German Industry Presses Merz for Tougher China Trade Policy as EU-China Talks Loom
German Chancellor Friedrich Merz signaled this week that Berlin is moving toward a firmer stance on trade with China, a shift driven in large part by growing pressure from the very industry groups that spent years resisting exactly this kind of confrontation with Beijing. Speaking to reporters after a cabinet meeting east of Berlin on Wednesday, Merz acknowledged that German industry has visibly changed its posture on global trade imbalances, and said his coalition intends to finalize its position before a European Union summit scheduled for October, when the bloc plans to outline new measures aimed at protecting European industries from unfair competition.
The shift represents a genuine reversal for a sector of the German economy that has historically opposed trade barriers with China out of fear that Beijing would retaliate against German exporters. For decades, German industry, and the automotive sector in particular, benefited enormously from China’s economic rise, treating the country as an indispensable market for machinery, vehicles and industrial equipment. That calculus has changed. Oliver Richtberg, head of foreign trade at the Machinery and Equipment Manufacturers’ Association, known as VDMA, captured the mood bluntly, saying German industry needs the courage to tell China that it is playing unfairly and that Germany intends to tighten the screws, while acknowledging that nobody can predict with certainty how Beijing will respond.
The numbers driving this reversal are difficult to ignore. German auto exports to China cratered in 2025, and the country continues to run the European Union’s largest bilateral trade deficit with Beijing by a wide margin. An OECD report released in June found that Chinese manufacturers received state support equivalent to three to eight times what OECD competitors typically receive relative to revenue, with subsidies estimated to account for nearly 60 percent of Chinese companies’ global market-share gains. Meanwhile, Germany has been losing more than 10,000 manufacturing jobs every month, a pace of industrial decline that has turned what was once an abstract policy debate into a matter felt directly in constituencies across the country. Johannes Volkmann, a fellow Christian Democrat lawmaker from Merz’s own party, described small and medium-sized businesses increasingly reaching out to pressure their members of parliament on the issue, framing Germany’s position as Europe’s largest economy as carrying a particular responsibility to lead on the matter.
Merz’s own position on China has followed a winding path since he took office. Before becoming chancellor, he delivered a speech in Berlin lumping China together with Russia, Iran and North Korea as part of an “axis of autocracies,” warning German companies that investing in China carried significant risk and explicitly telling investors they should not expect government support if those investments soured. Yet after taking office in May 2025, China initially slipped down the priority list for a government consumed by the war in Ukraine and an unpredictable relationship with Washington. Merz made his first visit to China as chancellor earlier this year, a trip where his tone notably softened, with the chancellor pointing to a Chinese order for 120 Airbus planes as evidence that engagement with Beijing remained worthwhile and signaling that further deals were in the pipeline. One German industry official at the time described feeling that Berlin had taken a step backward from its earlier tougher rhetoric.
That softer approach continued through the spring. German Trade Minister Katherina Reiche traveled to Beijing in late May seeking to strengthen industrial ties, even as several of the EU’s largest economies, including France, Spain, Italy, the Netherlands and Lithuania, issued a joint statement urging Brussels to crack down on Chinese industrial overcapacity and unfair trade practices. Germany notably declined to endorse that call at the time, continuing to position itself as the primary obstacle within the EU to a more confrontational collective stance toward Beijing. Despite the deepening trade imbalance, China remained Germany’s most important single trading partner in 2025, with bilateral trade volume reaching €250 billion and roughly 5,200 German companies maintaining operations inside the country, according to Germany’s Federal Statistical Office.
What appears to have shifted the political calculus is the accumulating weight of hard economic data alongside changing geopolitical dynamics. German exports to China have continued falling even as imports of Chinese goods, particularly electronics, electric vehicles and components, have risen sharply, worsening the trade imbalance that German industry now views as an existential threat rather than a manageable cost of doing business. The product categories that once made German manufacturing indispensable to global buyers, precision machinery, premium automobiles and industrial equipment, are increasingly being undercut by Chinese competitors that benefit from substantial state subsidies and what Merz has argued is an artificially weakened yuan.
Timing appears to be working in Merz’s favor as he pushes for a tougher line. His shift comes as a loose coalition of Indo-Pacific powers has been quietly working to constrain China’s strategic position in the region, giving Berlin’s harder rhetoric a broader geopolitical backdrop rather than positioning Germany as an isolated actor picking a fight with its largest trading partner. Whether this represents a clear-eyed reading of China’s evolving strategic vulnerabilities or simply reflects the mounting domestic pressure of German deindustrialization remains a matter of debate among analysts tracking the relationship, though the practical effect on policy looks similar either way.
Germany’s position carries outsized weight for the European Union’s broader approach to China precisely because Berlin has, for years, been the central obstacle preventing a more unified and confrontational EU stance. As Jens Eskelund, head of the European Chamber of Commerce in China, has noted, no other European country has the same capacity to point the entire bloc in a particular direction on China policy. Without clear direction from Berlin, European divisions on how to handle Beijing risk multiplying, but with Germany finally aligning more closely with countries like France, Italy and Spain that have long favored tougher trade protections, a more genuinely unified European position becomes considerably more achievable heading into the critical EU-China trade talks scheduled for October.
Merz has indicated support for stronger EU-wide measures should those October negotiations with Beijing fail to produce meaningful concessions, a stance that would bring Germany’s position closer in line with the more hawkish member states that have pushed for tougher action for years. German businesses, while still wary of potential Chinese retaliation against their remaining market access and existing investments, increasingly argue that continued inaction carries its own serious risks, given how rapidly Chinese manufacturers have been able to erode the competitive advantages that once defined German industrial exports. Whatever Berlin ultimately decides in the coming weeks will likely shape not just Germany’s bilateral relationship with China, but the entire European Union’s negotiating posture as it heads into what could become one of the most consequential rounds of EU-China trade diplomacy in years.
