Germany’s economy has been stuck in a rut for years, and most economists point to high costs, weak innovation and long-standing structural problems at home. A new study raises a different point: the real problem may not be internal, but coming from China. Under the title “China shock 2.0 – the cost of Germany’s complacency”, economists Sander Tordoir and Brad Setser from the UK-based Centre for European Reform argue that German industry is being squeezed by Chinese competitors in key markets, and Berlin is doing too little to respond.
A domestic reform push – and a challenge to that view
Clemens Fuest, president of the Ifo Institute, has called on the federal government to push through far-reaching changes at home. He wants more investment, stronger innovation and a fresh growth agenda. For many economists, the solution starts in Germany.
The new study by Tordoir and Setser, however, calls this widely held view at least partly into question. They locate the root of the problem not in German labor costs or bureaucracy, but in China’s targeted industrial policy – market barriers, state subsidies, strategic control of raw materials and direct policy interventions that give Chinese companies a structural advantage.
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Where China is pulling ahead
Chinese firms now dominate in raw materials, rare earths and basic chemicals for the pharmaceutical industry. The same pattern shows up in chips, robotics, batteries and electric cars. According to the authors, China leads these sectors both technologically and economically.
The shift is most visible in cars. Since the end of the Covid-19 pandemic, Chinese manufacturers have expanded their global market share quickly. Tordoir and Setser see this as a warning of how fast industrial power relations can shift – with serious consequences for traditional manufacturing countries like Germany.
They expect European companies to lose more ground in the coming years, not only abroad but also inside Europe. They point to Germany’s solar industry, once a global showcase and now nearly extinct. They also cite the decline of industrial heartlands in the United States in the 2000s as a cautionary example for Germany’s own industrial regions.
The numbers tell a clear story
China’s exports have recently grown much faster than global trade as a whole. Germany, meanwhile, has recorded declining business with China since 2023. The authors argue this is hitting industrial value creation and employment hard. The report does not provide exact percentage figures, but the trend is unambiguous.
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That kind of collapse could repeat in other industries, the authors warn, if Berlin does not act.
What the study recommends – and what Germany is doing
Tordoir and Setser call for stronger protective measures: higher tariffs on sensitive industrial imports, more preference for European products, stricter rules for Chinese companies that want to manufacture in Europe, and even joint-venture requirements modeled on China’s own approach.
So far, Germany has responded cautiously. The country’s close economic ties with China and fear of retaliation are part of the reason. Europe also still depends on Chinese supplies in critical raw materials and industrial intermediate goods.
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This week, Federal Economics Minister Katherina Reiche (CDU) is traveling to China with a delegation of about 40 business representatives, looking for cooperation projects. The trip suggests Berlin still sees Beijing as a partner, not primarily a threat.
EU pressure grows – Germany stays out
Inside the European Union, patience is wearing thin. France, Spain, Italy, the Netherlands and Lithuania have signed an informal position paper calling for a tougher response to China’s trade practices. Germany did not back the initiative.
In March, Chancellor Friedrich Merz (CDU) urged the conclusion of a trade agreement with Beijing. Brussels rejected that proposal. The gap between Berlin’s stance and that of other EU capitals is widening, and the new study adds fresh evidence that the old assumption – that Germany’s problems are mostly homemade – may no longer hold.