German Finance Minister Warns Against ‘Dangerous’ Trade Dependence on China

German Finance Minister Christian Lindner speaks during a session of Germany's lower house of parliament, the Bundestag, in Berlin, Germany, on June 3, 2022. (Lisi Niesner/Reuters)

Germany’s trade dependence on China has grown to “dangerous” levels, according to the country’s finance minister, with Berlin’s trade deficit with Beijing more than doubling last year, a development some experts warn can result in serious geopolitical implications.

“Dangerous development: The German trade deficit with #China more than doubled in 2022. We should learn from the experiences with Russia. Instead of becoming too dependent, we urgently need to rethink—and rely on more free trade with value partners,” Finance Minister Christian Lindner stated in a tweet on Feb.10. Germany registered an €84 billion trade deficit with China in 2022, up 115 percent from around €39 billion a year earlier.

In 2022, trade between Germany and China stood at €298 billion, up roughly 21 percent from 2021. Germany imported €191 billion worth of goods from China, a third more than it did the previous year.

However, exports from Germany to China grew by only 3.1 percent during this period. This is considerably low an export growth when compared to Germany’s 14 percent average rise in exports to other countries, according to Cologne-based economic research institute Institut der deutschen Wirtschaft (IW).

Germany’s dependence on China can become a geopolitical risk for the country. In case of an international conflict, Germany’s trade dependence could become a vulnerability as Beijing will be in a position to manipulate Berlin to align with its interests.

Reducing Chinese Dependence

This isn’t the first time that Lindner has sounded alarm bells on China. During a speech in March last year, for example, he called China a “systemic rival” to Germany, while warning that Berlin’s trade relationship with China is “almost a concentration risk” for the country’s economy.

“We have to recognize that we have an enormous risk,” Lindner said, according to Bloomberg. “China doesn’t respect our social model, our understanding of liberality, our recognition of international law.”

In January this year, Linder suggested that Germany must slowly reduce its dependence on China, but warned against economic decoupling since this could hurt jobs in the European nation.

In November, German Chancellor Olaf Scholz had also pointed to the need to reduce the country’s dependence on China. “We are doing away with the failings of an energy and trade policy that has led us into one-sided dependence on Russia and China, in particular,” he said to the lower house of parliament, according to Reuters.

Germany is reportedly working on a new China strategy. Since 2016, China has been the largest trading partner of Berlin.

Rare Earths, Diversification

According to Lukas Menkhoff, head of the global economy department at the German Institute for Economic Research (DIW), the key reason why Germany’s dependence on China is troubling is the supply of certain raw materials.

Almost two-thirds of rare earth metals imported by Germany come from China. Rare earths are metals critical in semiconductors, magnets for electric vehicles, and batteries.

“Russia’s war against Ukraine has dramatically shown us how commodity dependence can be used as political leverage by autocratic regimes,” Menkhoff said, according to Reuters. “Should China attack Taiwan, the German economy could run into supply problems.”

In a commentary published at The Epoch Times in December 2022, Fan Yu, an expert in finance and economics, cited a leaked paper from Berlin’s economy ministry which suggested that Germany and Europe have played into China’s hands and have doubled down their dependency on the Asian nation.

Though no country can replace China’s appetite for German exports, Berlin must “start somewhere,” Yu states, while asking Germany to prepare for a world where China becomes increasingly isolated.

“German businesses must be incentivized to diversify away from China. It will cost money, and it will hurt companies’ bottom lines, at least temporarily. And it takes commitment from the business community, German politicians, and its European Union allies,” he wrote.