German Chancellor Friedrich Merz landed in Beijing on February 25, 2026, embarking on his first official trip to China as the leader of Europe’s largest economy. His arrival comes at a time when German businesses are sounding the alarm over a ballooning trade imbalance with China, a challenge that’s putting the very core of Germany’s industrial might at risk. As Merz stepped onto the tarmac, he was not alone—accompanying him was a sizable delegation of 30 firms, including automotive giants Volkswagen and BMW, all keenly aware of the stakes involved.
The numbers tell a stark story: in 2025, imports from China into Germany more than doubled the value of German exports heading the other way, according to federal statistics. This yawning gap is more than a statistical curiosity; it’s a source of real anxiety for German manufacturers, particularly in the car, machinery, and chemicals sectors. Jürgen Matthes, head of International Economic Policy at the German Economic Institute (IW), put it bluntly in comments to the BBC: the situation “is eroding the core of German industry, especially in the car, machinery and chemicals sectors.” Matthes attributes much of this imbalance to “massive” Chinese subsidies and currency undervaluation, arguing that China’s price advantages “cannot just come from more innovation and efficiency.”
Beijing, for its part, maintains that its subsidy policies are transparent and fully consistent with international trade rules. Chinese officials have also responded to past allegations of currency manipulation by reiterating their commitment to a managed floating exchange rate regime, guided by market supply and demand but intervened where necessary.
Against this backdrop, Merz made his priorities clear before departing for Beijing. “We want a partnership with China that is balanced, reliable, regulated and fair,” he said, echoing the concerns of German businesses and policymakers. While economic issues dominated the agenda, Merz was also expected to press China to use its influence with Moscow to help end the war in Ukraine—a reminder that these talks are about more than just commerce.
The timing of Merz’s visit is no accident. The so-called “China shock” is reverberating across the European Union, not just Germany. The pandemic and Russia’s full-scale invasion of Ukraine have driven up production costs in Europe, while China has entered a prolonged deflationary phase. According to the Brussels-based economic think tank Bruegel, over-investment in Chinese manufacturing has created significant overcapacity, flooding European markets with cheap goods and deepening the trade deficit. The result? European leaders are scrambling to figure out how to offset the impact without sparking a full-blown trade war.
Noah Barkin, a visiting senior fellow at the German Marshall Fund and China analyst at the Rhodium Group, summed up the dilemma: “No one in Europe wants a two front trade war with the world’s two superpowers.” Yet, as Barkin points out, Europe does have leverage. “China needs somewhere to sell its goods. It has a real problem with over-capacity.”
For Germany, the stakes are especially high. The country’s famed car industry is in the midst of a bumpy transition to electric vehicles, a sector where China already dominates. Job losses have mounted, and business groups are urging Merz to address not only the trade imbalance but also distortions in competition and export controls on critical rare earths. The Federation of German Industries has been particularly vocal, calling for clear signals and robust action from the chancellor.
Merz’s instincts as a free-trade trans-Atlanticist are being tested by current global realities. While France pushes for a more protectionist agenda, Germany remains skeptical. The European Commission has launched numerous anti-dumping cases against China and is considering measures to boost domestic production and curb foreign dependencies. Yet, as Barkin notes, “classic trade defence tools like tariffs” are harder for the EU to deploy compared to the United States, which has wielded tariffs more flexibly under both President Donald Trump and his successors.
China, meanwhile, is eager to present itself as a reliable economic partner—especially as U.S. trade policies have upended the global trading system. At a signing ceremony at Beijing’s Great Hall of the People, Chinese Premier Li Qiang called on both sides to “jointly safeguard multilateralism and free trade, and strive to build a more just and fair global governance system.” Li’s remarks, reported by Reuters, were a clear nod to European concerns about supply chain vulnerabilities and growing dependence on China.
Merz responded in kind, emphasizing the importance of “fair cooperation and open communication.” He acknowledged that Germany has “very specific concerns regarding our cooperation, which we want to improve and make fair.” It’s a delicate balancing act—one that aims to redefine an economic relationship that has become increasingly unfavorable to German interests without severing the deep ties that bind the two economies.
The face of China’s market has changed dramatically in recent years. Once coveted by foreign businesses for its massive consumer base and rising spending power, China’s slowing economy has capped consumer demand. At the same time, manufacturing overcapacity is pushing Chinese firms to seek opportunities abroad, intensifying competition for European manufacturers. As Europe’s Trade Commissioner Maroš Šefčovič told the European Parliament, the continent is witnessing “an acceleration of concerning trends in China,” including dominance in key manufacturing sectors, rising trade imbalances, and falling EU market share in China.
Despite these headwinds, German business enthusiasm for China remains strong. Chinese state media, ahead of Merz’s visit, emphasized the potential for EU-China cooperation to serve as a stabilizing force in turbulent times. Xinhua cited a German chamber of commerce survey highlighting how innovation gains in China are feeding back into German headquarters. The Global Times editorialized that “rhetoric such as ‘systemic rival’ and ‘de-risking’ has at times complicated Germany’s China policy,” but insisted that “the enthusiasm and actions of the German business community speak louder than political slogans.”
Still, the challenges are real, and Germany’s broader strategy of “change through trade”—championed for years by former Chancellor Angela Merkel—now looks increasingly fraught. The deep economic ties and dependencies built up over decades are not easily unwound. As Merz himself acknowledged before boarding his flight, Germany will continue its broader de-risking policy but “it would be a mistake for us to seek to decouple ourselves from China.”
All of this comes as Germany, long dependent on the U.S. for its security and on China for its growth, seeks to chart a more independent course. The dual visits to Beijing and Washington this week underscore the dilemma facing not just Germany but many middle powers: how to reduce dependencies on rival great powers without undermining their own economies or national security. For now, Merz’s inaugural visit to China signals a commitment to engagement, but with eyes wide open to the risks and complexities ahead.
As the world watches, the outcome of these talks could shape not only Germany’s economic future but also the broader dynamics between Europe, China, and the United States in a rapidly changing global landscape.