Why does Berlin support a stricter EU trade policy towards China

Germany asks the EU for more tools to deal with China October 13, 2026Germany's caution towards Beijing is starting to crack. For years, Berlin blocked a firmer stance against what the European Union describes as China's "unfair trade practices". This cautious position is changing. Last week, German Chancellor Friedrich Merz and French President Emmanuel Macron sent a joint letter to the President of the European Commission, Ursula von der Leyen. In it, they requested a new instrument to exclude a trading partner from the EU's single market if unfair practices persist. The letter, which clearly pointed at Beijing, warned that the measure was necessary against countries that "deliberately seek to undermine (...) fair market conditions by political or economic means". The Chinese Ministry of Commerce warned, in turn, that Europe "would suffer the consequences" if it adopted such a plan. The cost of inaction Noah Barkin, senior advisor for China in the research consultancy Rhodium Group, explained to DW that the threats to the German exporting power "have convinced Merz and his closest advisors that the benefits of acting outweigh the costs of not doing so". Before the COVID-19 pandemic, both economies were growing in parallel, and the German industry benefited from China's rise. However, since 2021, China has gone from being Germany's second-largest export market to the ninth, according to Germany Trade & Investment data for the first half of 2026. Chinese competitors have rapidly closed the technological gap and benefit from much lower costs and state subsidies. This pressure is especially felt in German automotive, precision engineering, and chemical industries. Why Berlin's policy towards China is changing German vehicle manufacturers have suffered a sharp drop in sales in China, which was once their second-largest market. According to Rhodium Group data, German car exports to China plummeted by 66% between 2022 and 2025. Large German brands are now facing intense competition from a new wave of Chinese electric vehicle manufacturers in other important markets, including Europe. This is causing a wave of layoffs and possible factory closures. "After these companies lost market share continuously in China (...), it seems that this rivalry is affecting their business within the European automotive market," said Andreas Mischer, an associate researcher at the Mercator Institute for China Studies (MERICS), based in Berlin, to this outlet. Growing industry pressure to increase trade defense Among the numerous German business leaders who have demanded a tougher stance in recent months, Oliver Richtberg, head of foreign trade for the Association of Machinery and Equipment Manufacturers (VDMA), was perhaps the most forceful: "At this time they are de-industrializing us through unfair measures, and most companies are no longer willing to accept it," Richtberg stated in August to the newspaper Welt am Sonntag. According to Eurostat, the trade deficit of goods for the EU as a whole against China was around 360 billion euros last year, about 402 billion dollars. This is practically equivalent to 1,000 billion euros per day. The deficit widened again during the first half of 2026. Business groups question industrial policy proposals The EU's Industrial Acceleration Act, proposed in March, aims to attract manufacturing investment back to Europe. To do this, it would give preference to companies established in the bloc in public contracts and subsidies. The European Automobile Manufacturers' Association (ACEA) warned in September that the bill barely contributes to counteracting the threat from Chinese competitors, whose products are cheaper. Berlin's main concern was that China could impose new restrictions on the export of rare earth minerals and magnets made with them. China exerts an almost absolute dominance over these elements, which are essential for German automotive, renewable energy, and defense industries. The EU is studying additional trade measures The EU and China reached a "common understanding" last week during trade talks held in Beijing. This could reduce Chinese exports of hybrid vehicles to the EU by more than half, according to European Commissioner for Trade Maros Sefcovic, who led the European delegation. According to the information published, the agreement would limit these imports from China to 350,000 vehicles per year. The limit would increase by 6% each year for four years. In total, new electric hybrid cars represented almost 37% of all new vehicles registered in the EU between January and August, according to ACEA data. For its part, MERICS calculated that the bloc is a more important export market for China than the United States. During the first half of the year, Chinese exports to the EU amounted to 254 billion dollars, compared to the 172 billion exported to the United States. This could strengthen the position of EU negotiators while they try to avoid a trade war and, at the same time, protect Europe from China's most recent export excess. "The EU has more pressure capacity than it sometimes believes," Mischer concluded in statements to DW.