Germany is pivoting away from its decades-long policy of unfettered free trade with China, as Berlin moves to implement protectionist measures to shield its industrial core from what officials and business leaders describe as an increasingly “abusive” economic relationship.
The shift marks a fundamental breakdown in a partnership that once saw Germany supply the high-end machinery China needed to industrialize. According to The Wall Street Journal, Chinese manufacturers have now graduated from buyers to competitors, displacing German firms in sectors they once dominated.
German Chancellor Friedrich Merz has signaled a sharp departure from his predecessors, recently announcing protections for domestic steelmakers and tightening bans on Chinese components within mobile-data networks. The German government is also signaling support for “buy-European” clauses in public tenders to counter state-subsidized Chinese rivals.
“We are free-traders, but unfair trade policies cannot be tolerated any more,” Oliver Richtberg, head of foreign trade at the VDMA federation of machinery makers, told the Journal. “If China doesn’t play fair, we have to make them.”
Economic Imbalances and Market Erosion
The cooling of relations comes as Germany’s trade deficit with China is on track to reach a record 88 billion euros ($102 billion) in 2025. Data from the German Economic Institute shows that imports of manual gearboxes from China tripled in the second quarter of 2025 alone, while German carmakers have seen their market share in China plummet from 50% to roughly 33% over the last two years.
The pressure on German industry has been exacerbated by a “wave” of cheap Chinese goods, ranging from chemicals to car parts, redirected to Europe after hitting new U.S. tariff walls under the Trump administration.
This competition has left visible scars on the German economy:
- Manufacturing output has fallen 14% since its 2017 peak.
- Industrial jobs have declined by 5% since 2019.
- Automotive sector employment has dropped 13% over the same period, according to figures from Ernst & Young.
Strategic Decoupling
A forthcoming report from the Rhodium Group notes that Germany has lost its global market-share lead to China in power-generation equipment and machinery. For the first time, Germany now imports more capital goods from China than it exports there.
In response, Berlin is prioritizing economic security and resource independence. AMG Lithium is currently constructing a refinery in eastern Germany intended to eventually supply 25% of Europe’s lithium needs, reducing reliance on Chinese supply chains.
In November 2025, Germany’s newly formed National Security Council met to address strategic risks regarding China’s dominance of critical minerals. The government is expected to publish a formal economic-security strategy next year.
While some large chemical and automotive firms continue to invest in China, the broader consensus among German lobby organizations—including the Federation of German Industries (BDI)—has shifted. The BDI, which once championed the China market, now classifies the country as a “systemic competitor.”
“Germany is moving and becoming aware of the imbalances that also affect it,” French President Emmanuel Macron told Les Echos following a recent diplomatic visit. “China is hitting the heart of the European industrial and innovation model.”
