Germany’s De-Risking Failed, China #1
U.S. tariffs cut exports; Chinese overcapacity floods imports. The squeeze is structural.
Germany’s trade scoreboard just flashed red.
China slid back into first place not because industry surged, but because imports outran exports. That is the tell.
The self-congratulatory talk about de-risking sounded good for a year. Then the table reset. China’s total with Germany hit €163.4B in January–August 2025; the U.S. logged €162.8B. A wafer-thin €0.6B gap flipped the headline—and exposed how twitchy the system really is.
Two hits landed at once. Washington tightened the tariff vise, and sales into the American market buckled. Late summer was ugly. August was a gut punch: German exports to the U.S. were down 23.5% year-on-year that month, and down 7.4% in the first eight months overall. Classic exports—cars, machinery, chemicals—took the blow. A firm euro twisted the knife.
At the same time, Chinese goods poured into Europe. Germany soaked up the surge. Imports from China climbed 8.3% to €108.8B; exports to China fell 13.5%. The balance turned lopsided. The scoreboard moved because China sold far more into Germany than Germany sold back. The deficit widened. So did the leverage.
What arrived wasn’t bargain-bin junk. It was the serious kit that runs modern industry: electrical systems, machine tools, industrial electronics. Containers roll off ships, move straight into supply chains, and squeeze margins at the incumbents that once set the standard. In June 2025 alone, top Chinese shipments into Germany included machinery for electricity production and distribution (€2.37B), data-processing machines (€1.47B), and telecom equipment (€996M).
The auto sector makes the stakes hard to ignore.
Cars and parts still anchor the export mix—17% of all exports in 2024—and the model rested on three pillars: premium pricing in the United States, predictable cash flow from China, and cheap inputs at home. The first now carries tariff risk. The second faces a competitor that flipped from net importer to exporter with global reach: China now ships roughly 5 million more vehicles than it imports, dwarfing Germany’s net surplus (~1.2 million, half its pre-pandemic peak). Chinese EVs undercut prices across the EU. Sales into China soften. The revenue meant to finance the electric transition is getting clipped from both sides.
Call it the Second China Shock. The first wave after WTO entry targeted consumer goods and low-end manufacturing; German firms survived—and profited—by selling the machines that built those factories. This wave goes straight for the crown jewels: capital goods, clean tech, advanced batteries, industrial electronics. After the property bubble cracked in 2021, Beijing leaned harder on state-directed investment. Domestic demand couldn’t absorb the output. The overflow went abroad. Europe became the pressure valve. Germany became the landing zone.
The comfortable story died quietly.
For years the bet was Wandel durch Handel. Integrate and politics will moderate. What came instead was industrial scale at home, guarded access for outsiders, and a relentless export push into open markets. Non-tariff hurdles inside China dog medical devices, machine tools, pharma—while the import bill in Germany rises and the export engine sputters. H1 2025 spelled it out: exports flat (-0.1%), imports up (+4.4%).
Europe feels it because Germany remains the center of gravity. When the German model falters, the bloc’s growth math goes wobbly. Yet the policy line—de-risk while staying open—keeps tripping over the data. U.S. tariffs cut into the most profitable sales. Chinese capacity fills European shelves. Dependence deepens, not recedes.
Politics tightens the knot. The Free Democrats fought off tougher supply-chain due-diligence rules. Industry lobbies slow-walk stricter screens for subsidized imports. Brussels tries to write a coherent China policy while its largest economy sends mixed messages. Beijing reads the room with precision: praise for strategic autonomy to dilute transatlantic coordination; soft-glove treatment for boardrooms; hard elbows for regulators. Flattery for the factory gate, friction for the rulebook. Division does the rest.
The incentives point away from courage.
If factories lean on Chinese inputs for critical machinery and electrical systems, confrontation carries a price politicians hesitate to pay. If profits depend on U.S. demand, tariff risk becomes a permanent sword over earnings calls. That’s bargaining from the back foot, not equilibrium.
The options aren’t pleasant:
Rebuild strategic capacity in the sectors being displaced. That needs capital, time, and political cover.
Tighten European trade defense where distortions are obvious. An open market can’t absorb infinite subsidized capacity.
Diversify supply chains even when short-term pain is guaranteed. Wait, and the choice disappears.
Firm-level exposure details are missing. The outline is unmistakable. Exports stall. Imports rise. Core industries feel the pressure. The old model leaned on cheap Russian energy, expanding access in China, and premium sales in the United States. One foundation exploded in Ukraine. Another is eroding as China turns competitor first. The third is getting chipped away by Washington’s tariff policy.
So the headline about China edging back to the top isn’t the drama. The real story is the slow shift in bargaining power, the erosion of cash flows that funded innovation, the vacuum where a continental leader used to set the tempo. Keep saying de-risking if it soothes the room. The pattern says something harsher.
There’s a fork in the road. Accept industrial decline, tidy the narrative, and call it modernization. Or restructure the model with a coordinated China policy made in Brussels, not in corporate press shops. Demand reciprocal access and back it with enforcement. Move supply chains with urgency, not memos. Strengthen EU trade defense in sectors where subsidized imports obviously warp the market. All rational. All necessary. Rarely rapid.
That thin margin separating China and the United States in Germany’s trade stats is not the story. It’s a symptom. Exports to both giants are weakening while Chinese imports surge. The industrial base that carried Europe for a generation is being squeezed by two superpowers that treat trade as hardball. Made in Germany will keep its prestige. Without forceful choices, it will keep losing leverage. Decline in a manufacturing power rarely arrives as a single crash. It shows up as a steady intake of other people’s capacity, a steady loss of pricing power, a steady retreat from decisions that no longer fit neatly into communiqués.
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Annnnnd the hits just keep on coming, YEAH!
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