Why Germany’s China policy is dividing Europe and weakening its own economy

This stance reeks of wishful thinking and falls short of the structural realities. It treats a deep-seated systemic rivalry as a mere misunderstanding that could be resolved through better negotiation.

Worse still, it weakens Europe’s negotiating position at the very moment when unity is most crucial.

By refusing to actively support the EU Commission’s new overcapacity instrument, the German government is presenting itself as Europe’s weak flank. 

An alliance of five EU nations – France, Italy, Spain, the Netherlands, and Lithuania – is pushing for a tougher approach, while Berlin is blocking and obstructing progress from the background.

Behind this lies an unmistakable prioritisation: the protection of large, deeply invested DAX-listed companies in China dictates the guidelines of German policy.

When a giant like BASF invests billions in its new mega-complex in Zhanjiang, it has a vital interest in ensuring that the EU does not impose tariffs that could provoke countermeasures from Beijing.

For the large corporations, de-risking means continued engagement in China; for smaller companies, it means quite the opposite.

Reiche is acting here as a protector of corporate interests, accompanying their representatives.

However, the price for this apparent pragmatism is being paid by another sector of the economy: Germany’s small and medium-sized enterprises (SMEs).

While large corporations often have the resources to relocate parts of their production directly to China to serve the Chinese market “from within,” this option is hardly feasible for medium-sized machine manufacturers, suppliers, or speciality chemical companies.

They are defenceless against direct competition from highly subsidised Chinese imports in their European home market. 

Moreover, a recent study by the Friedrich Naumann Foundation shows that Germany’s import dependency on strategically critical goods has actually increased since 2023. 

The much-vaunted “de-risking” is proving to be, in practice, a rhetorical pacifier without any real substance.

A strategic error

Given a bilateral trade volume exceeding €251 billion, decoupling from China is not an option. However, reducing the highly asymmetrical dependencies is strategically necessary. This is not about economic alarmism, but about strategic coherence.

If Germany claims the right to lead and protect Europe in terms of security policy, it cannot simultaneously shirk its responsibility in the core economic sphere and pursue national policies that weaken the already laborious compromise-making machine that is the EU.

A strong Europe needs an economic policy that not only serves the interests of a few large corporations but also considers the industrial base of the entire continent – ​​including small and medium-sized enterprises.

Related

Reiche’s trip may have met the wishes of the accompanying managers. However, as a signal for a future-oriented European China policy, it was a step backwards.

If Berlin is not prepared to support uncomfortable structural decisions and set real, European limits on China’s trade practices, it will lose prestige and the trust of its partners.

One cannot demand leadership in Europe if, at the crucial moment, one only serves particular interests. China has an interest in precisely this, because it copes better with a divided Europe than with a united one.

Viewed more charitably, the simultaneous visit of Reich and the presentation of the new trade instruments by the European Commission can also be interpreted as follows:

China has a choice: if it accepts the German offer, opens its markets, and works towards constructive compromises, the success story of globalisation, in which both sides have become wealthy, will continue.

If it continues its aggressive confrontational strategy, the EU knows how to react and has the appropriate instruments ready. Then Germany will probably also switch sides, if it isn’t too late by then.