Why did Germany turn to supporting the EU’s tough trade stance against China?

Germany's cautious approach to China is wavering. Over the past few months, previous caution over concerns about Chinese retaliation at the expense of German exporters has turned into a willingness to escalate responses.

Last week, German Chancellor Mertz and French President Macron jointly sent a letter to European Commission President von der Leyen, proposing the establishment of a new mechanism: if the unfair behavior of trading partners continues, they can be excluded from the EU market.

The letter is clearly aimed at China. The letter warned that such measures must be taken against countries that "deliberately undermine... fair market conditions through political or economic means."

China's Ministry of Commerce warned that if Europe adopts this "kill-switch plan", it will "suffer its own consequences." The proposal comes just ahead of crucial China-EU trade talks in Beijing last week.

Noah Barkin, senior adviser for China operations at Rhodium Group, told DW that China's threat to Germany, an export powerhouse, "has convinced Mertz and his core staff that the benefits of taking action outweigh the costs of standing still."

Before the COVID-19 epidemic, the economies of China and Germany were advancing hand in hand, and German industry also benefited from China's rise. However, according to data from the German Federal Trade and Investment Agency for the first half of 2026, China has fallen from Germany's second largest export market to the ninth largest market.

Meanwhile, Chinese rivals have rapidly narrowed the technology gap and gained an edge in the competition with extremely low costs and state subsidies. The pressure is particularly felt in Germany's automotive manufacturing, precision machinery and chemical industries.

German automakers have seen their sales plummet in China, one of their most important markets. According to data from Rhodium Group, German automobile exports to China plummeted by 66% between 2022 and 2025.

Today, major German car brands are also facing fierce competition from China's new generation of electric car manufacturers in other major markets such as Europe, which has forced German car companies to take measures such as layoffs and factory closures.

According to data from the German Federal Statistics Office, in the first seven months of this year, the number of new Chinese-made cars imported into Germany increased by 121% year-on-year; overall, Chinese-made cars accounted for nearly 14% of Germany's total car imports.

Andreas Mischer, a scholar at the Berlin-based Mercator Center for China Studies (MERICS), told DW: "After continuing to lose market share in China... this competition seems to have begun to impact German car companies' business in the European automotive market."

Mischer pointed to pressure from Germany's powerful automotive lobby as a key factor in Berlin's "change of attitude towards the use of trade defense tools."

Among the many German business leaders who have called for a tougher stance in recent months, Oliver Richtberg, head of foreign trade at the German Machinery and Equipment Manufacturing Federation (VDMA), has been particularly blunt. Richterberg told Welt am Sonntag in August: "We are currently suffering the impact of 'deindustrialization' due to unfair means, and most companies are no longer willing to accept this situation."

According to Eurostat data, the EU's goods trade deficit with China last year was approximately 360 billion euros (approximately US$402 billion), equivalent to 1 billion euros per day, and this deficit will further expand in the first half of 2026.

Although Brussels has been trying to resist the dumping of cheap Chinese goods, a bill aimed at protecting industries and combating coercion has faced resistance both in Beijing and within the EU. The Industrial Accelerator Act proposed by the EU in March aims to protect local EU companies and attract manufacturing investment back to Europe through preferential public bidding.

Foreign investment in key sectors will only be approved if European companies retain majority control. Beijing characterized the move as a discriminatory measure. The European Automobile Manufacturers Association warned last month that the draft bill would do little to combat Chinese rivals whose costs are significantly lower. Incentives for production within the EU must be strong enough to "offset additional costs", the association said in a position paper.

The main concern in Berlin is that China may impose new export restrictions on rare earths and the magnets they are made from. China has absolute dominance over these key elements, which are crucial to Germany’s automotive, renewable energy and defense manufacturing industries.

Bloomberg quoted an unnamed German official as saying last week that the EU's new "one-click termination mechanism" could become a "second strike weapon" if Beijing imposes an export blockade. The decision on whether to launch the measure will be made at a summit of EU leaders later this month.

Perhaps in an effort to avoid open confrontation, the EU and China reached a "consensus" at last week's China-EU trade talks that could see China's exports of hybrid cars to the EU cut by more than half. EU Trade Commissioner Maros Sefcovic, who leads the EU delegation, said this could involve millions of cars exported from China to the EU in the next four years.

At the same time, calculations by the Mercator China Research Center show that for China, the EU is currently a more critical export market than the United States. In the first half of this year, China's exports to the EU were US$254 billion, while exports to the United States were US$172 billion. That could give EU negotiators stronger leverage as they hope to avoid a full-blown trade war while protecting Europe from a recent surge in Chinese exports to Europe.

"Sometimes the EU has more leverage than it realizes," Mischer of the Mercator Center for China Studies told DW.