German Industry Urges Merz to Confront China's Trade Practices

German business associations are increasingly calling on Chancellor Friedrich Merz to adopt a firmer stance toward China, citing what they describe as unfair competition from Chinese manufacturers. The shift marks a departure from the country's long-standing reluctance to impose trade barriers for fear of retaliation from Beijing.

Germany's trade deficit with China, its largest trading partner, widened by roughly €22 billion last year to €89.3 billion. Imports rose 8.8 percent while exports fell 9.7 percent. An OECD report from June found that Chinese manufacturers received three to eight times more state support than their OECD counterparts relative to revenue, with subsidies accounting for nearly 60 percent of their global market-share gains.

Volker Treier, head of foreign trade at the German Chamber of Commerce and Industry (DIHK), said Berlin needs to discuss with Beijing what is happening. "If it is confirmed that this is attributable to subsidies or unfair competition, then it is an issue," he said.

The pressure is particularly acute for automakers like Volkswagen, which has been overtaken by local brands such as BYD in China and now faces growing competition from Chinese rivals in Europe. Volkswagen CEO Oliver Blume recently called for a "level playing field," urging tariffs on plug-in hybrids from China and "Made in Europe" rules to boost the share of European-made components. After Chinese media interpreted his remarks as protectionist, the company walked back the comments, highlighting the delicate balancing act for firms wary of losing European market share while avoiding a trade conflict with the world's largest auto market.

Merz's coalition has sharpened its rhetoric on China but has sent mixed signals, combining calls to reduce economic dependencies with an insistence that China remains an important partner. Following signs of division within his coalition, Merz said he had asked the cabinet to work on proposals to address trade imbalances between the EU and China. He noted that German industry itself appears to have changed its mind, pointing to associations like the VDA, which represents automakers and is reconsidering its previous opposition to protective measures.

Industry groups are growing impatient. Christian Bruch, CEO of Siemens Energy, said in June that treating Chinese imports like European products was "not acceptable," calling for regulations and local content quotas. The BDI, representing major manufacturers, is advocating for faster application of existing trade instruments, including safeguards and anti-dumping measures. BDI executive board member Wolfgang Niedermark said possible Chinese countermeasures should be considered but should not prevent Europe from acting.

The BDI estimates that state subsidies and a yuan considered undervalued by around 15 percent against the euro allow China to undercut German prices by 30 to 40 percent. China denies unfairly subsidising its industries or using an undervalued currency for export advantage.

France, Italy and Spain are among EU countries pushing the bloc to revamp its trade-defence measures. While Germany was not part of that initiative, sources say Merz has signalled support for Brussels to prepare a package of measures should October talks between the EU and China fail. "The European Union must have effective instruments at its disposal to effectively defend its interests in the world," Merz said in June.