Commentary:MerzRecalibratesGermany’sChinaStrategyAmidIndustrialShifts

Germany, while not a permanent member of the United Nations Security Council, stands as the world’s third-largest economy and the primary engine of the European Union. Facing the continent’s largest land war in decades, the nation is undergoing a profound transformation.

Whether acting as part of the so-called European security core known as the E3 — alongside Britain and France — or in its role in the six-party talks on the Iranian nuclear issue, Germany’s weight in international affairs is growing.

Amid internal debates over migration, deepening fractures within the 80-year-old Western alliance, and industrial challenges posed by emerging economies like China, Friedrich Merz, the center-right Christian Democratic Union leader now helming Germany, has embarked on a journey to recalibrate the country’s direction.

A crucial component of this recalibration is his inaugural visit to China during the Lunar Year of the Horse.

While not necessarily besieged on all sides, Merz faces a path to reshaping Germany that is far from smooth, given the compounding challenges of transition.

At the start of the new year, he chose India, another Asian giant, as the first destination for his 2026 diplomatic travels.

Following his trip to China, Merz is scheduled to embark on his second visit to the U.S. during his chancellorship.

Navigating between major powers and avoiding excessive dependence on any single market has become the definitive strategy for mainstream middle powers, Germany included.

Merz’s brief two-day visit covers Beijing and Hangzhou. It encompasses conventional economic and cultural cooperation but also highlights an interest in China’s emerging industries. Notably, compared to the earlier visit by U.K. Prime Minister Keir Starmer, which focused primarily on trade, Merz’s itinerary exceeds his British counterpart’s in both depth and breadth.

German enterprises once held commanding leads in internal combustion vehicles, chemicals, and machinery, reaping massive profits in the Chinese market. While the bilateral relationship was never officially termed a “Golden Era,” the era of Merz’s predecessor, Angela Merkel, was often cited as a model of relations between China and the West, underpinned by the belief that when China prospers, Germany prospers.

However, with China’s industrial upgrading and the meteoric rise of its emerging sectors, the era of extraordinary performance for German companies in China has passed. Complementarity remains, but exclusivity has faded while competition has intensified.

According to German data, bilateral trade reached 253 billion euros ($298 billion) in 2025. While this represents a 2.7% increase from the previous year, the trade imbalance has widened significantly: German imports from China hit 171.2 billion euros, while exports to China stood at only 81.8 billion euros. The deficit surged from 20 billion euros in 2024 to 87 billion euros in 2025.

From Berlin’s perspective, the influx of Chinese industrial goods is causing Germany — a nation built on exports and industry — to lose at least 10,000 industrial jobs every month.

German officials view issues such as China’s domestic overcapacity, “unfair” subsidies, export restrictions on critical raw materials, and Beijing’s stance on the Russia-Ukraine war as indicators that the relationship has reached a critical inflection point. As the old win-win model fades, the question remains: what new paradigm will replace it?

Broadly speaking, Germany, long China’s largest trade and economic partner within the EU, approaches its China policy with a complexity and depth that exceeds other European nations, involving increasingly fierce jostling among various interest groups.

Take the EU’s anti-subsidy investigation into Chinese electric vehicles as an example. The German automotive industry, which has the most comprehensive footprint and largest market share in China, worries about the impact of Chinese new-energy vehicles on its traditional automakers, yet cannot overstate the importance of the Chinese market.

Although Germany ultimately voted against the investigation, it stood alone against the majority; with the support of other EU nations, the anti-subsidy tariffs eventually came into effect.

Despite this, the allure of China’s massive domestic market remains a powerful asset for Beijing when dealing with Germany and other mainstream Western nations.

While the “de-risking” strategy has become a dominant trend in European supply chains, China’s decades of accumulation have resulted in what is arguably the world’s most complete industrial chain. Even in today’s wave of global diversification, China remains a supply chain node that most countries cannot bypass.

As a traditional Atlanticist, Merz differs from French President Emmanuel Macron and Canadian Prime Minister Mark Carney. Even as transatlanticism faces significant challenges, Merz continues to pin his hopes on the established German-U.S. and Euro-Atlantic relationships.

This stance reflects the prevailing attitude of mainstream Western politicians operating under the unilateralism of the Trump administration.

Such an inclination ensures that Germany under Merz will not deviate from its confirmed tripartite definition of China as a “partner, competitor, and systemic rival.”

The relative weight of these three elements in Germany’s industrial and foreign policy toward China will shift dynamically, shaped by bilateral interactions, the evolution of transatlantic relations, and China’s own developmental trajectory.

Huang Shan is a reporter at Caixin Media.