Decreased appeal of the United States as a trade ally
In the first half of 2024, Germany's trade landscape has undergone significant changes, with the USA and China emerging as the country's top two trading partners. Imports from the USA to Germany increased by 2.7% to €47.4 billion, surpassing China as Germany's most important trading partner for the first time since 2016.
The shift from the US to China has significantly affected Germany's industrial base and competitiveness in the US market. Since around 2020, Germany's imports from China grew sharply, with an over 60% increase from 2020 to 2022, while its exports to China declined by 20%. This disrupted trade pattern is likely linked to shifts in global supply chains and increased Chinese industrial strength.
This "China shock" has hit German industry broadly, especially the automotive sector, which is a key part of Germany's industrial base. Although a 2025 EU-US trade deal temporarily lowered US tariffs on European vehicles, the sector still faces serious long-term risks, including persistent US protectionist measures, Germany’s lag in electric vehicle transition, and supply chain vulnerabilities.
The surge in Chinese imports could be a sign of China redirecting trade from the USA to Europe. Commerzbank economist Vincent Stamer predicts that the new US tariffs will slow down German exports to the USA by 20 to 25% over the next two years. In contrast, imports from China to Germany increased by almost 11% to €81.4 billion in the first six months.
Jürgen Matthes, IW expert, attributes the influx of Chinese imports to the "strong undervaluation" of the Chinese currency, the yuan. The undervaluation of the yuan makes Chinese imports cheap and allows Chinese companies to offer extremely low prices, potentially eroding Germany's industrial competitiveness further in both European and international markets.
Carsten Brzeski, ING chief economist, also suggests that China is flooding the German market with cheaper Chinese goods. The decline in German exports to the USA is partly due to President Donald Trump's significant tariff increases since January. The total trade in goods between the USA and Germany was €125 billion, slightly ahead of China's €123 billion.
However, Brzeski predicts that China will regain the top spot among German trading partners later in 2024. This prediction is echoed by Matthes, who warns that the gradual erosion of the German industrial base may occur due to the increased reliance on Chinese imports. The 15% surcharge on most EU goods in the USA also makes German products more expensive, potentially further impacting exports to the USA.
In conclusion, Germany's trade landscape is undergoing a significant transformation, with the USA and China playing increasingly important roles. The shift towards China has compromised Germany's industrial base and reduced the competitiveness of its products, including in the critical US market. The surge in Chinese imports and the potential for increased protectionist measures in the USA pose significant challenges for German exporters in the coming years.
The shift towards China has also impacted Germany's financial stability, as the surge in Chinese imports has increased the country's trade deficit. Additionally, the increased reliance on Chinese trade has raised concerns about the security of Germany's business interests, given China's growing industrial strength and potential for protectionist measures.
