BRUSSELS — The European Commission wants to capitalize on the crisis facing German industry to try to convince Berlin to give Brussels tougher powers to protect the economy from cheap Chinese imports.
Germany has for a long time been reluctant to jeopardize its trade ties with Beijing, fearing retaliation if it imposes restrictions, but the Commission is betting Chancellor Friedrich Merz will struggle to justify that stance in the face of sluggish growth, four European diplomats and officials with knowledge of the discussions in Brussels told POLITICO.
The EU’s existing relations with China “cost a significant number of jobs in Europe and jeopardize prosperity,” said Engin Eroglu, a German MEP and chair of the European Parliament’s China delegation. “This is an unsustainable situation.”
Europe has deepened its reliance on Chinese appliances, components, rare earth metals and other essential goods in recent years, at the same time as more and more industrial jobs have moved overseas. While Brussels has set targets to diversify trade and find alternative suppliers, more targeted measures against China are likely to provoke retaliation — which could compound industry’s woes in the short-term.
As POLITICO reported on Friday, the Commission has drawn up plans for a “more assertive and effective trade defense policy” towards China. That would accelerate work on what it calls an “overcapacity instrument” to cut down on the volume of state-subsidized goods flooding the market.
In comments to POLITICO, Commission chief spokesperson Paula Pinho said that a debate on the issue between top officials on May 29 “is not about any individual Member State. It’s a necessary discussion at an increasingly challenging time when it comes to both geopolitics and geoeconomics. To confront these challenges, we need a European approach.”
Germany’s prized automotive sector is dependent on the Chinese market to subsidize its factories. Merz and his predecessors have been wary of provoking Beijing for fear of harming the car industry, clean tech and chemicals that are reliant on China for critical materials.
Still, Merz has called on the EU to help rescue the continent’s industries as his fragile coalition faces public discontent over the economy. The country’s manufacturing and chemicals sectors have been hammered by high energy prices as a result of the war in Iran, as well as fierce competition from the U.S. and China.
“If you look at the numbers in terms of destruction of jobs and factories in Germany, I would not understand how they [the German government] would be able to plead for the status quo,” said one diplomat from a European country supportive of the Commission push to restrict Chinese imports. The diplomat was granted anonymity because the discussions between capitals and the EU are still at the confidential stage.
Last year, Germany lost around 124,100 industrial jobs, according to an analysis from EY. Since 2019, one in 20 industrial jobs has disappeared, the research found. Only 15 percent of Germans are satisfied with Merz’s centrist coalition, according to a poll earlier this month. The chancellor was booed onstage at a trade union congress last week as he set out economic reforms.
The far-right Alternative for Germany (AfD) party has taken the lead in national polls in recent weeks, seeking to win over voters who fear living standards are falling. The issue is one where Merz can hope to go on the offensive — AfD leader Alice Weidel has cultivated the admiration of state media in China, where she previously lived.
Trade defense
Commission President Ursula von der Leyen and top commissioners will discuss their plans on May 29, before they put them to EU leaders at a summit in Brussels on June 18-19.
The French government in February published a bleak economic assessment that warned “the Chinese steamroller” could crush key parts of the European economy. But while Paris and a handful of other EU countries are actively pushing to reduce reliance on Beijing, Germany has been publicly split on the issue.
China dumping its excess goods on the EU and Beijing’s devaluation of its currency to keep its products cheap topped the list of issues Merz brought to Chinese leader Xi Jinping during the chancellor’s first trip to the country in April.
Katherina Reiche, the country’s economy minister, will travel to China next week to brand Germany as a reliable trading partner, despite voicing concerns over dumping.
Merz’s governing Christian Democratic Union party is split on the issue. According to Nicolas Zippelius, a Bundestag member from Merz’s governing faction, “the outlook is clear: Beijing will continue to increase dependencies,” and the EU should now act to ensure its companies can compete.
Germany industry is also divided, with big companies like Siemens, BASF, Mercedes, BMW and Volkswagen reluctant to impose harsher trade measures out of fear of retaliation, while suppliers and in particular the manufacturing sector say that the EU has to act, despite the risk of Chinese counter-action.
“China is increasingly taking market share from us using unfair means,” said Oliver Richtberg from the German Engineering Federation (VDMA). He added that there are “no easy or painless solutions” to deal with this “real threat”, but “if Europe fails to respond at all, the damage to the engineering sector could be the greatest.”
The development of a standalone package of measures that can be deployed on a case-by-case basis is seen as being preferable for Germany to blanket policies like “Buy European” criteria that have previously struggled to find support from Berlin, said one of the EU officials. The latest proposals are designed to appeal to Merz, they went on, at a time when not supporting efforts to save European industry would be “unsustainable” for Germany. A German government spokesperson declined to comment.
“I don’t see China taking the initiative to address issues such as overcapacity or unfair subsidies,” said Metin Hakverdi, China coordinator for the SPD, Merz’s coalition partners “We’ll have to decide how to respond on a case-by-case basis, taking a pragmatic approach that aligns with our interests.”
Gabriel Gavin, Jordyn Dahl and Carlo Martuscelli reported from Brussels. Hans von der Burchard reported from Berlin
EU bets Germany will back trade clampdown as ‘Chinese steamroller’ roils industry
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