Germany’s De-risking Approach: US Surpasses China as Top Trading Partner

The US has become Germany’s top trading partner in the first quarter of this year, overtaking China for the first time in 8 years.

According to Reuters calculations based on official data from the German statistics office, Germany’s total trade with the US, including exports and imports, reached 63bn euros ($68bn) from January to March. The same data revealed that China’s trade with Germany was under 60bn euros.

Shifting Trends

From 2015 to 2023, China was Germany’s top trading partner, with trade volumes totaling 253bn euros. That was a few hundred million ahead of the US.

Explaining this shift, Commerzbank economist Vincent Stamer, said: “German exports to the US have now risen further due to the robust economy there, while both exports to and imports from China have fallen.”

He pointed to other structural reasons behind this quarter shift. Starmer said China has increased its production of more complex goods, which it used to import from Germany. “In addition, German companies are increasingly producing locally instead of exporting goods from Germany to China,” he added.

A Reorientation in the Making

According to Juergen Matthes, an economist at the German economic institute IW, German imports of Chinese goods declined nearly 12% year-on-year in the first quarter, whereas German exports to China fell just over 1%.

“The fact that the Chinese economy is performing worse than many had hoped, while the US economy is exceeding expectations, is presumably contributing to this,” Matthes told Reuters.

He noted that the US now accounts for about 10% of German goods exports, while China’s share has declined to less than 6%. He said: “With a clear global economic headwind for the German economic model, a reorientation – also geopolitically motivated – seems to be taking place: away from system rival China and towards transatlantic partner US.”

Germany’s De-risking Approach: US Surpasses China as Top Trading Partner
Olaf Scholz with Xi Jinping in Beijing

Until now, however, it remains unclear if this trend will continue, with the US election 6 months away. Dirk Jandura, president of the BGA trade association, said: “If the White House administration changes after the US elections in November and moves more in the direction of closing off markets, this process could come to a standstill.”

German Concerns

In its first “China strategy” announced last year, Germany defined China as a “partner, competitor and systemic rival,” accusing the Asian power of “unfair practices” and pushing for a policy of “de-risking” to reduce its reliance on China due to political differences.

However, Berlin has not outlined clear policy steps to reduce its dependency on Beijing.

In mid-April, German Chancellor Olaf Scholz visited China to discuss the tense economic relations between both countries and their differing views on the Russia-Ukraine war, according to the New York Times.

Throughout the trip, Scholz promoted the interests of German companies that find competition in the Chinese market increasingly difficult. The German Chancellor signaled the EU’s growing concern over the Chinese cheap goods that could dump European markets.

Unfair Competition

Scholz visited German companies that have heavy investments in China and met with trade representatives and officials in various industrial zones. In these meetings, he emphasized Germany’s commitment to doing business with China, but warned that Beijing should control the flood of Chinese goods into the EU markets. “Competition must be fair,” Scholz said.

Germany’s De-risking Approach: US Surpasses China as Top Trading Partner
Scholz visiting a German factory in China

While Germany faces pressure from allies, including the US, to press China to scale back its surge of exports in the green energy sector, including electric vehicles (EVs), it tries to balance its allies demands with the export-oriented needs of its domestic economy.

In 2023, German companies invested 10.4 billion euros ($11bn) in China, and are seeking expansion. According to NYT, about 5,000 German companies are operating in China. However, two-thirds of them said they felt they were facing unfair competition, in a survey of 150 members of the German Chamber of Commerce in Greater China.

Escalating Tensions

China’s increasing investments in green sectors, like EVs and solar panels, which also receive substantial subsidies from government, have raised trade disputes with Europe and the US. The EU has opened investigations into China’s use of subsidies for green technology industries.

Given the big number of companies active in the Chinese market, Germany is set to lose more than any other EU country if Beijing decides to retaliate against the EU.

Amid the escalating trade tensions, the Chinese President Xi Jinping has toured three European countries this week, France, Serbia and Hungary, trying to avoid a trade war with the EU and deepening ties with countries that seem ready to embrace China’s view of a new global order.

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