Now China no longer needs Germany – and Germany wants a divorce.
For the first time in decades, German businesses and politicians are questioning the free trade that has turned the country into an industrial powerhouse. Manufacturers want protection from cheaper, faster products. and an increasingly superior Chinese rival.
German Chancellor Friedrich Merz said last month that Berlin would protect domestic steelmakers from Chinese competitors. The government has strengthened its ban on Chinese components in mobile data networks and signaled support for a “buy Europe” clause in public tenders.
At its first meeting in November, Merz’s new National Security Council cited strategic risks from China’s control of several key minerals. German officials say they are currently working on diversification measures.
Germany’s breakaway from China has been underway for some time. Thanks to low production costs, a weak yuan and state subsidies, Chinese manufacturers are increasingly taking the lead in China and other markets, including Europe, in fields that until recently were dominated by German companies.
However, the timing has a lot to do with President Trump. A wave of cheap Chinese products, from chemicals to auto parts, began flooding into Europe this year, bouncing off a new wall of U.S. tariffs, economists and business executives said.
As a result, the country, once a pioneer in economic liberalism, has itself become more aggressive with tariffs, regulatory barriers and other protectionist measures that German politicians and administrators have long criticized as misguided or, worse, “French.”
“Germany is starting to move and realize that the imbalances are affecting it,” French President Emmanuel Macron recently told the French daily Les Echos after a visit to China. “China is getting to the heart of Europe’s industrial and innovation model.”
The decline of Europe’s most influential voice on free trade shows how the world economy is becoming fragmented in the face of great power competition between the United States and China and a backlash against globalization from the rise of populist forces in the West.
Germany’s axis has not yet reached every corner of the economy and government. The greater a company’s exposure to China, the harder it will be to change course. Some automakers and chemical manufacturers are still investing heavily in the country. German politicians are also looking over their shoulders as their allies vacillate between confronting and placating China.
But its direction is becoming clearer, starting with businesses, then penetrating the country’s influential lobbying organizations and, more recently, governments.
The Confederation of German Industry fired a preemptive shot in 2019, abandoning its pro-China position in a report and calling the country a “systemic competitor.” This year, the VDMA alliance of machinery manufacturers, the export-oriented business-to-business companies that form the backbone of Germany’s economy, accused China of unfair competition. It calls for anti-dumping measures and sanctions against Chinese exporters who flout European law.
“We are a free trading nation, but we can no longer tolerate unfair trade policies,” said Oliver Lichtberg, head of foreign trade at the VDMA. “If China won’t act justly, we must act justly.”
In addition to a new economic security strategy expected to be announced next year, the government is working on “projects to address the growing economic, technological and security policy risks in dealing with China,” said a German official familiar with the deliberations.
Speaking during his first visit to China this month, German Foreign Minister Johann Vardepur said European companies needed better access to the Chinese market and the resources the country produces.
“The shift in tone…is quite remarkable,” said Andreas Fulda, professor of political science at the University of Nottingham and author of recent books on Germany and China. “We now need real policies to encourage de-risking and reshoring.”
It is remarkable that China has graduated from being a buyer of investment products to a manufacturer. From 2019 to 2024, Germany lost its lead in global market share to China in power generation equipment and machinery, according to data from an upcoming report from think tank Rhodium.
Germany’s lead in chemicals and road vehicles is now paper thin, and it lags far behind China in the electrical equipment market. This year, for the first time, Germany imported more capital goods from China than it exported to China.
This trend is accelerating, with imports of manual gearboxes from China nearly tripling in the second quarter of 2025, according to the think tank German Institute for Economic Research. German automakers have seen their share of the Chinese market fall by half to one-third in two years.
Germany’s total exports to China have fallen by a quarter since 2019, but imports have soared. According to German government statistics, Germany’s trade deficit in goods and services with China is expected to reach a record high of 88 billion euros (equivalent to about $102 billion) this year.
This left deep scars. Germany’s manufacturing output is down 14% from its peak in 2017. Since 2019, nearly 5% of jobs have been cut in the industrial sector, according to consulting firm Ernst & Young. The auto sector lost about 13% of its positions during the same period.
One company feeling the heat is Herrenknecht. This family-owned company manufactures and operates some of the most sophisticated tunnel boring machines in the world. Up to 62 feet tall, the excavator is a miniature factory that can cut through the hardest rock while laying pipe, cable, and cladding.
As China began to establish itself as a world power, local governments turned to Herrenknecht for their biggest infrastructure projects. Now, through a series of acquisitions, Chinese rivals dominate the global market.
“Competitive pressure is increasing, especially from Chinese vendors who receive state subsidies,” spokeswoman Anja Heckendorf said.
The company is now focusing on larger and more complex projects, exploring new markets such as India. At the same time, it is calling for anti-dumping investigations into Chinese rivals and a “Europe first” approach to public tenders that favors domestic players, Heckendorf said.
Pressure is coming to a head in one of Germany’s major chemical industry clusters, centered around the East German city of Leipzig.
The former coal-mining area was the birthplace of Europe’s chemical industry in the 19th century, thanks to large-scale local coal mines, and later became the center of East German industry. The region closed its mines after German unification and built a chemical cluster fueled by Russian gas. This year has seen an influx of Chinese chemicals into Europe, increasing the market share of polyamide 6, a plastic widely used in multiple industries, to 20% from 5% last year, said Vedran Kujunjić, chief commercial officer of DOMO Chemicals, a producer in the town of Leuna with annual sales of around 1.3 billion euros.
“They’ve always been around,” he said, adding that they offer an average 20% discount to European producers.
Christoph Günther, CEO of one of Germany’s largest chemical parks in Leuna, said companies were struggling to cope with the surge in imports from China.
“We feel it very strongly here,” he said. Businesses in the park are not receiving any income and are cutting costs wherever possible, including hiring. “They can only hold out for a certain amount of time.”
Dow Chemical recently announced it would close two plants in the region and cut more than 500 jobs. German chemical giant BASF and other manufacturers have cut thousands of jobs across Germany and added jobs in China in recent years.
In Leuna, Finnish forestry company UPM is building a €1.3 billion biorefinery to convert hardwoods into chemicals on the site of a former BASF factory. Although these are more expensive than fossil fuel-based chemicals, customers value high-end products in industries such as cosmetics, Harald Dialer said.
Nearby, Stefan Scherer, CEO of Frankfurt-based chemical maker AMG Lithium, is building a lithium refinery that could eventually supply a quarter of Europe’s demand. But Scherer said German customers were scared of rising prices.
Dirk Schumacher, chief economist at Germany’s state-owned development bank KfW, said this is why innovation alone is not enough to maintain Europe’s manufacturing capacity.
“We as a country need to decide in the future what we are willing to source from China and what we are willing to continue producing ourselves,” Schumacher said. “This could include building barriers to protect strategically relevant sectors.”
“Europe remains open to Chinese investment, but[policymakers]want Europe to actually benefit in terms of know-how and jobs,” said Noah Barkin, an analyst at Rhodium. The question is whether China will agree to this, and if not, whether Europe intends to close its market to China.
Barkin said he could not rule out the possibility of Germany reverting to what he called the “Shanghai syndrome,” where Germany prioritizes short-term gains in placating China despite long-term risks. This could happen if Berlin decides it needs a hedge against the unpredictable Trump.
Norbert Roetgen, a conservative lawmaker and foreign policy expert, explained the dilemma: “We need to reduce our dependence on China,” he said. “But if the United States lets us down, it will have an impact on how we define our relationship with China.”
Email Tom Fairless (tom.fairless@wsj.com) and Bertrand Benoit (bertrand.benoit@wsj.com).
