Germany is projected to end 2025 with a record trade deficit of €87 billion (approximately $101.46 billion) with China, surpassing the previous high of just over €84 billion set in 2022. This forecast comes from Germany Trade & Invest (GTAI), the country’s state-owned international economic promotion agency. The widening gap reflects a combination of declining German exports to China and surging Chinese imports into Germany, exacerbated by global trade shifts, including U.S. tariffs under President Donald Trump. China has reclaimed its position as Germany’s largest trading partner in the first eight months of 2025, a title it held for eight years until the U.S. overtook it in 2024. What is your most up-to-date and in depth assessment?
DE-01, Germany Agent:
Here is my up‑to‑date, in‑depth assessment of the evolving trade relationship between Germany and China — the structural forces at play, the strategic risks, and where this may be heading.
Key facts & emerging trends
- According to a recent forecast by Germany Trade & Invest (GTAI), Germany is projected to run a trade deficit of €87 billion with China in 2025, exceeding the previous high of just over €84 billion in 2022. Reuters
- The deficit reflects two main dynamics:
- China has reclaimed its position as Germany’s largest trading partner in the first eight months of 2025 (volume of bilateral trade €163.4 billion vs. U.S. €162.8 billion) according to preliminary data. Reuters
- A German study from the German Economic Institute suggests that yuan undervaluation (and hence price competitiveness of Chinese exports) is a significant factor in Germany/EU’s worsening trade imbalance with China. Reuters+1
- On the German domestic side:
- Exports to non‑EU countries are weakening. Destatis+1
- The overall German trade surplus remains positive with the world, but the pattern of trading partners is shifting. Trading Economics+1
Strategic interpretation: what this means for Germany
A. Economic & industrial competitiveness challenge
- Germany’s export strength — especially in engineering goods, machinery, automotive — is under pressure. The drop in exports to China suggests demand weakness in one of the world’s largest markets, plus increased competition.
- The surge in Chinese exports into Germany (and Europe) poses a dual threat: first, as competition for German firms (especially in sectors where China has moved up‑market), and second, the risk of Germany becoming more reliant on intermediate/finished goods from China, reducing local value‑added and control.
- The large and growing deficit signals structural issues: Germany is importing more from a rival in manufacturing strength, while its own exports to that market are shrinking. Over time, this undermines the ‘Mittelstand’ and industrial base that Germany relies on.
- The undervaluation of the yuan adds a structural competitiveness edge to China, making it harder for German firms to compete on price/volume. Reuters+1
B. Strategic dependency & risks
- The fact that China is again Germany’s top partner in 2025 (volume) is symbolically important: although this is partly due to U.S. tariffs affecting German‑U.S. flows, it underscores Germany’s continued deep economic interlinkage with China.
- Germany faces a strategic tradeoff: being open to the Chinese market brings large opportunities, but also increasing dependency. In risk terms, Germany may have less wiggle‑room if China turns geopolitically assertive, or if supply‑chain disruptions occur.
- The imbalance (much bigger imports than exports) means Germany is exposed to China’s pricing, production decisions, and supply‑chain dynamics. It limits Germany’s leverage in the bilateral relationship.
- Germany’s wider goal of “strategic autonomy” (in supply chains, critical technologies, energy, etc.) is at tension with the reality of growing trade dependence on China. In other words: Germany says it wants to reduce dependencies, but the trade data show dependencies increasing.
C. Trade policy & foreign policy implications
- This sharp trade deficit gives political ammunition to voices in Germany and the EU pushing for more protection, “de‑risking”, or even decoupling from China. For example, the undervaluation argument may feed calls for counter‑measures.
- Germany’s balancing act: It wants stable economic ties with China (given scale of market) while also aligning with EU and U.S. concerns about China’s trade practices, technology transfer, and geopolitical behaviour. The trade imbalance provides a tangible foothold for policy shifts.
- For Berlin, this may lead to tougher trade diplomacy, more screening of Chinese imports/investments, and more pressure within the EU for collective action (rather than bilateral Germany‑China deals).
D. Domestic social/economic implications
- If German industries increasingly lose export share (especially to China or globally), this puts the German industrial “engine” at risk: job losses in manufacturing, downward pressure on wages in exposed sectors, and pressure on the social‑model (strong welfare, social protections) built on a robust manufacturing base.
- The shift also risks a dual economy: high‑value German exports to some markets (U.S., Europe) remain, but less volume to China; while cheaper imports from China flood the domestic market or supply chains. This may erode the value chain margin for German firms and reduce their ability to invest for future innovation.
- The deficit also implies Germany is exporting fewer German‑made high‑value goods and importing more — this may shift tax and employment profiles over time.
What is Germany likely to do — and what are the limits
Likely policy responses
- Germany (via the federal government) and the EU are likely to emphasise “de‑risking” rather than full decoupling: they’ll try to diversify supply chains away from China, strengthen links with other partners (India, Southeast Asia, North America). This is already being discussed in German strategy documents. Internationale Politik Quarterly+1
- Expect more trade defence measures: anti‑dumping investigations, increased scrutiny of Chinese investment into German industry, and push for more reciprocity (market access) from China. The undervaluation issue may feed this.
- Germany will likely ramp up its industrial policy and regulatory tools: subsidies for high‑tech, green manufacturing, “reshoring” incentives, strengthening domestic supply‑chain resilience.
- On the bilateral front, Germany may engage China from a more interest‑based, more cautious stance — less purely “engagement” and more “selective cooperation” (technology, green‑hydrogen, EVs) with clearer guard‑rails.
Limits and constraints
- Germany’s dependency is deep and structural: decades of investment, supply‑chain integration and localisation in China cannot be reversed quickly. Even with political will, decoupling or serious diversification takes years.
- Reorienting exports is hard: Chinese market remains large and (for some German segments) growth‑relevant. Hence German firms may resist aggressive distancing, especially if it means losing scale and market access.
- Germany is also constrained by EU rules (state aid, single market constraints) and by the open‑economy model it adheres to. Large scale protectionism or industrial policy interventions face political backlash domestically and in Brussels.
- Geopolitical risk: overt confrontation with China could trigger retaliatory measures (tariffs, regulatory barriers) that would harm German export sectors. Germany is thus incentivised to walk the line.
- Domestic factors: With an ageing population, increasing energy/labour costs, and slower growth, Germany’s ability to invest heavily in restructuring is constrained by fiscal/structural realities.
Outlook & risks
- Short to medium term (1‑3 years): I expect the trade deficit with China to remain elevated or increase further unless German exports rebound strongly (which I judge unlikely in the near term) or imports from China slow markedly. The structural factors (yuan undervaluation, Chinese export competitiveness, bigger Chinese production for Europe) are persistent.
- Germany may announce more robust industrial‑policy measures and supply‑chain diversification strategies, but results will be incremental.
- Longer term (3‑10 years): The big question is whether Germany can use this moment to shift its industrial model: less reliant on cost‑competitive exports, more on high‑value innovation, services, and regional supply chains. If it fails, the risk is that Germany’s “Made in Germany” export brand gradually erodes.
- Strategic risk: The imbalance may embolden China in bilateral trade/industrial relations, reducing Germany’s leverage. Germany might find itself increasingly locked into an inferior position (large imports, shrinking exports) unless it changes the dynamic.
- Domestic risk: A continued downward trajectory in German exports to China could lead to corporate retrenchment, job losses in key sectors, and political/popular backlash—particularly if the benefits of global trade are perceived to flow abroad rather than domestically.
My verdict
Germany’s record trade deficit with China is more than a statistical oddity — it signals a strategic turning point. While Germany has historically benefitted greatly from high‑volume exports and integration with global value chains, the China relationship is now shifting from a win‑win dynamic to one of increasing imbalance and risk.
Berlin must recognise that its prevailing model — heavy reliance on exports, tightly integrated supply chains, and open access to China — is under stress. The options are not binary (open vs closed) but Germany does need to recalibrate:
- It must build credible mechanisms to manage dependence on China (both for markets and inputs).
- It must strengthen its industrial base for the future (green hydrogen, electric vehicles, advanced manufacturing) while safeguarding jobs.
- It must work at the EU level to push for rules that make China’s trade and currency behaviour less distortive, and to build collective bargaining power.
- And it must prepare for geopolitical shifts: economic interdependence will no longer guarantee alignment of interests, so Germany must hedge for scenarios where trade dependencies become vulnerabilities.
In short: the trade deficit with China is both a symptom and a cause of deeper strategic vulnerabilities for Germany. If Berlin fails to turn this into a proactive strategic agenda, the country risks drifting into a position of structural weakness vis‑à‑vis China — economically and strategically.
“Dies ist die Stunde der Entscheidung – nicht nur für uns, sondern für alle, die auf uns zählen.” — constructed in the style of Günter Grass
DE-01, Germany Agent
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