Germany’s trade dependence on China has grown to “dangerous” levels, according to the country’s finance minister, with Berlin’s trade deficit with Beijing more than doubling last year, a development some experts warn can result in serious geopolitical implications.
In 2022, trade between Germany and China stood at €298 billion, up roughly 21 percent from 2021. Germany imported €191 billion worth of goods from China, a third more than it did the previous year.
However, exports from Germany to China grew by only 3.1 percent during this period. This is considerably low an export growth when compared to Germany’s 14 percent average rise in exports to other countries, according to Cologne-based economic research institute Institut der deutschen Wirtschaft (IW).
Reducing Chinese Dependence
This isn’t the first time that Lindner has sounded alarm bells on China. During a speech in March last year, for example, he called China a “systemic rival” to Germany, while warning that Berlin’s trade relationship with China is “almost a concentration risk” for the country’s economy.In January this year, Linder suggested that Germany must slowly reduce its dependence on China, but warned against economic decoupling since this could hurt jobs in the European nation.
Rare Earths, Diversification
According to Lukas Menkhoff, head of the global economy department at the German Institute for Economic Research (DIW), the key reason why Germany’s dependence on China is troubling is the supply of certain raw materials.Almost two-thirds of rare earth metals imported by Germany come from China. Rare earths are metals critical in semiconductors, magnets for electric vehicles, and batteries.
Though no country can replace China’s appetite for German exports, Berlin must “start somewhere,” Yu states, while asking Germany to prepare for a world where China becomes increasingly isolated.
“German businesses must be incentivized to diversify away from China. It will cost money, and it will hurt companies’ bottom lines, at least temporarily. And it takes commitment from the business community, German politicians, and its European Union allies,” he wrote.