German industry presses Merz for tougher China policy

By Maria Martinez and Rachel More

BERLIN, Aug 28 (Reuters) - German industry is increasing ‌pressure on Chancellor Friedrich Merz to ​take a tougher line ​with Beijing, with companies calling for stronger action to address what they describe as unfair competition from Chinese rivals.

The growing assertiveness from German business representatives marks a shift in a country that long resisted trade barriers for fear of Chinese retaliation. How Berlin positions itself will help shape the European Union's broader trade stance toward China, with talks between the bloc and Beijing ‌scheduled for October.

An OECD report published in June found Chinese manufacturers received three to eight times more state support than OECD rivals relative to revenue, with subsidies ⁠accounting for nearly 60% of their global market-share gains.

Germany's trade deficit with its biggest trading partner widened by around €22 billion last year, to €89.3 billion ($104.05 billion), as imports into the European country rose 8.8% and exports fell 9.7%.

"We need to discuss with China what is happening. ‌If it is confirmed that this is attributable to subsidies ‌or unfair competition, then it is an issue," said Volker Treier, head of foreign trade at the German Chamber of Commerce and Industry (DIHK).

The concern is particularly pressing for German automakers like Volkswagen which, having been overtaken by local brands such as BYD in China, now face growing competition from Chinese rivals in the European market.

Merz's coalition has sharpened its language on China but its messages remain mixed, combining calls to ​reduce economic dependencies with an insistence that the country remains an important economic partner.

Following signs of division on the matter within his coalition, Merz said on Wednesday he had asked the cabinet to work on proposals to address trade imbalances between the European Union and China.

“We note that German industry, too, has apparently changed its mind regarding these global imbalances,” the chancellor said, pointing to associations such as the VDA ⁠representing automakers, which is reconsidering its previous opposition to protective measures.

INDUSTRY GROWS IMPATIENT

Christian Bruch, CEO of Siemens Energy, said in June that treating Chinese imports like European products was "not acceptable", adding that regulations needed to be put in place and local content quotas considered.

The DIHK's Treier said there ​were sufficient instruments in the World Trade Organization and the EU framework to defend European industry.

"We simply need to streamline and shorten our decision-making processes when we decide to act," he said.

The BDI, representing major German manufacturers, is advocating for the faster application of existing trade policy instruments, including safeguards, and methodological adjustments, such as bundling ​product groups in anti-dumping and anti-subsidy proceedings.

"The situation is intensifying due to the massive price pressure we face from Chinese ‌suppliers," said BDI executive board member Wolfgang Niedermark. "Possible countermeasures by China must be included in strategic considerations, but should not determine or ultimately prevent Europe's actions."

State subsidies and a yuan that Deutsche Bank analysts consider to be around 15% undervalued against the euro allow China to undercut German prices by 30% to 40%, the BDI estimates.

China denies ⁠that it unfairly subsidises its industries or uses an undervalued currency to gain an export advantage.

LEVEL PLAYING FIELD

Volkswagen CEO Oliver Blume told investors in a recent earnings call that Europe needed to create a "level playing field", addressing a lack of tariffs on plug-in hybrids from China and calling for "Made in Europe" rules designed to increase the share of European-made components in vehicles.

After Chinese media interpreted Blume's words as a call for protectionism, the company rowed back on his comments, illustrating the delicate balancing act for ⁠automakers concerned about losing European market share while wary of any trade conflict with China, the world's biggest auto market.

Jacob Gunter of the Mercator Institute for China Studies said German automakers' ties with China had been a "hugely beneficial deal for a ​very long time" but not any longer.

"They are getting absolutely knocked around by Chinese competition in China, in Europe, and in third markets."

Volkswagen still commands by far the largest market share in Europe but new entrants are gaining ground. China's BYD, Chery and Leapmotor sold between three and six times more vehicles in June than in the same month of 2025, and sales at SAIC and Geely rose more than 50% and more than 11% respectively.

A spokesperson for the VDA, which opposed ‌EU tariffs on all-electric vehicles made in China in 2024, said the association was monitoring developments and analysing whether it was necessary to adjust its position.

"Companies remain concerned about possible Chinese retaliation. But in the meantime, doing nothing has also become a risk," said Matthias Bianchi of the German Association of the Mittelstand, which represents the ‌vast network of small and medium-sized businesses that account for more than half of the jobs in Germany.

SUPPORT FOR BRUSSELS

France, Italy and Spain are among EU countries pushing the bloc to revamp its trade-defence measures, according to a May 22 position paper ⁠seen by Reuters.

While Germany was not part of the initiative, two people close to the ‌discussions said Merz had signalled support for Brussels to prepare a ​package of measures should October talks between the EU and China fail.

"The European Union must have effective instruments at its disposal to effectively defend its interests in the world," Merz said in June. "We carry weight in the world, and we want to use it."

($1 = 0.8582 euros)

(Reporting by Maria Martinez and Rachel More; Additional reporting by Christoph Steitz and Philip Blenkinsop; ‌Editing by Kirsten Donovan)

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