June 21 2024: Economy Minister Robert Habeck will emphasize Germany’s commitment to maintaining commercial links with China during his visit starting Friday. However, trade experts suggest that economic and political factors increasingly favor a stronger U.S.-German relationship.
Habeck’s visit aims to explain the European Union’s recent tariffs on Chinese electric vehicles to Chinese officials while minimizing the risk of retaliatory actions from China that could impact German exports.
Shifts in Trade Volumes
In the first quarter of 2024, Germany’s trade with China amounted to 60 billion euros ($64 billion), compared to 63 billion euros in U.S.-German trade, breaking an eight-year trend of China being Germany’s top trading partner.
New data highlights this shift: German exports to China fell by 14% in May year-over-year, while exports to the United States increased by 4.1%.
China’s Economic Challenges
China faces domestic challenges, including a real estate crisis and high local government debt, which are dampening domestic activity. Some analysts predict a potential period of stagnation for China, similar to Japan’s “lost decades” starting in the 1990s.
Maximilian Butek, executive director of the German Chamber of Commerce in East China, noted that German trading partners remain committed to the Chinese market, expecting a recovery in demand. However, sustained low confidence in China’s private sector and consumers could lead to the United States solidifying its position as Germany’s leading trading partner.
Germany’s Strategic Reorientation
Germany’s export growth to China is already being affected by China’s move up the value chain, producing more complex goods. Additionally, Germany has stated its intention to reduce its trade exposure to China, citing “unfair practices” in its first China strategy document last year.
While Berlin has expressed a desire to strengthen ties with partners like South Korea, it has yet to outline specific policy measures to reduce dependencies on China. Juergen Matthes, head of international economic policy at the German Economic Institute IW, believes a paradigm shift is beginning, moving away from a close relationship with China towards a stronger transatlantic partnership with the United States.
Potential Impact of U.S. Political Changes
If Donald Trump wins the U.S. election in November and adopts a more protectionist stance, increasing tariffs on imports, it could trigger a global trade war. A report by consulting firm Roland Berger suggests such a scenario would have devastating effects on all major economies, with China and the United States suffering more than Europe.
Long-term, this could lead to a split into two incompatible trading blocs, a form of global economic “fragmentation” warned of by the International Monetary Fund. Such a development would force export-oriented economies like Germany to make stark commercial and geopolitical choices.
“Trump will force Europeans to decide on which side they want to be – with China or with the United States,” said Roland Berger’s global managing partner Stefan Schaible, asserting that Germany would likely side with its NATO ally, the United States.