Commentary
Germany’s government and leading corporations are increasingly at odds over their relations with China.
The government in Berlin is criticizing Beijing for devaluing its currency, weaponizing its stranglehold on global rare earth refinement, and engaging in gray-zone military tactics around Taiwan and in the East and South China Seas. But German companies are worried about retaliation against any measures to protect Germany’s market.
While Germany formerly supported closer relations with China, Berlin’s tone has shifted amid adverse developments in economic and security ties between the two countries. Now, Berlin is trending toward Brussels’ stance, which is more hawkish toward the Chinese Communist Party (CCP).
German Chancellor Friedrich Merz said that China keeps its currency undervalued by as much as 30 percent. He criticized Beijing’s state subsidies of industries and non-convertible currencies as non-competitive. In the case of China, they lead to overcapacity in Chinese goods, low prices for those goods, and a flood of them into global markets. The undervaluation simultaneously impedes German exports from successfully competing globally, including in China’s market.
While German manufacturers previously profited from extensive exports to China, China’s domestic manufacturers are now outcompeting them in Chinese markets. Beijing’s limits on Chinese rare-earth exports have hit German auto and defense manufacturing particularly hard. This is dangerous when Russia’s war in Ukraine could expand to other European countries, and the United States increasingly expects Europe to be less dependent on the United States for its defense.
Chinese autos, clothes, and solar panels are pouring into Europe and closing down factories. Germany has lost a seventh of its autoworker jobs since 2019, in part due to competition from Chinese automakers in China. Since 2020, investment has been down, while in other major European economies, investment has increased. Germany’s manufacturing workforce is now at a decade low of just 6.6 million.
Volkswagen is considering laying off yet more workers, this time 100,000 of them, due in part to competition with China. They include 45,000 German workers at four plants, in addition to 50,000 phased layoffs agreed in 2024. One of its biggest shareholders has said that producing its China-developed autos in Germany could save some of these jobs.
Low economic growth in Germany is leading Berlin to make plans to gradually raise the retirement age from 67 to 70. In 2026, Germany’s growth forecast is just 0.5 percent. This is below the eurozone average, in part due to Germany’s lagging exports.
The worsening economic position of Germany relative to China is heightening security concerns, especially as Beijing channels an increasing share of its economic and innovation efforts toward militarization. This militarization enables its demands for “reunification” with Taiwan and control of nearly all of the South China Sea.
Germany has issued recent diplomatic missives declaring concern over Chinese military activity that threatens shipping east of Taiwan, and stability in the East and South China Seas. Berlin is also concerned about China’s support for Russia in its war against Ukraine.
Merz is raising the issue of currency undervaluation with the European Council and the G7, which comprises the United States, Germany, Italy, the United Kingdom, France, Canada, and Japan, as well as the European Union, a non-enumerated but influential member. He proposed a new Plaza Accord, which, in 1985, engineered a weaker dollar through cooperation among the United States, Japan, and major European economies.
Merz said he got strong support from the United States on his concerns. This raises the question of whether the G7 will soon take stronger and more united actions against China’s currency undervaluation and state subsidies, not to mention its territorial aggression in East Asia and the South China Sea.
Beijing’s systemic approach to promoting China’s exports and expanding its territory requires not only a systemic response from Germany, all of Europe, and the United States, but also proactive preemption of the threat.
The United States, Europe, and the rest of the world’s democracies should have a unified position that stops China’s military aggression overseas, including through economic sanctions and tariffs on China. These will make it more difficult for the CCP to use its economy to fuel incremental military conquests. If not stopped, those incremental takings will eventually empower the CCP to take more and more at each opportunity.
The United States and Europe are supposedly at loggerheads over everything from NATO and tariffs to the Pope in Italy. The disagreements include policies on Iran, Ukraine, Canada, and Greenland. Sometimes they get personal. On many of the more important issues, both sides have a point.
Compromises need to be made so we can focus on the real threats coming from authoritarian countries like China. The German case illustrates the point. As democracies, we are realizing that we are all in the same boat when it comes to the coming typhoon that goes by the name of the CCP.
