Today’s trade relations between Germany and China no longer promise the deep economic ties that occurred under former Chancellor Angela Merkel. It is an undeniable fact that the global financial system is affected by political tensions. Although China’s relationship with Germany is significant for China as it is its leading trading partner in Europe and a source of European foreign investment, several factors harm this relationship. Their relationship is strained due to Russia’s war in Ukraine, Beijing’s growing closeness with Moscow, and China’s increasing tensions with Germany’s most important ally, the United States. [1]
In July 2023, the government of German Chancellor Olaf Scholz published a new strategy document for its largest trading partner, China. With this new strategy, Germany aims to reduce its dependence on China and maintain a constructive relationship. This new approach from Berlin, which plays an essential role in the growth of the European economy, is also vital for the European Union (EU). If Germany succeeds in establishing this constructive relationship, this strategic initiative could set a precedent for other EU member states. However, even though the German government claims to want to de-risk its economic dependence on China, it still needs to be solved how they will translate this strategy from theory to real life, considering Berlin’s intertwined trade ties with Beijing.
In addition to this development, the EU has decided to investigate subsidies on electric vehicles imported from China. Considering that anti-subsidy investigations are generally initiated upon an industry complaint; we can say that the EU is indeed concerned about the size of the share of Chinese brands in the European market and initiated this investigation to protect Europe’s economic security because the Chinese share is expected to increase rapidly in the coming years. In other words, this investigation is based on a political infrastructure rather than an economic decision.
Although the Union claims that this move against Beijing is in line with trade rules, questions arise as to how the WTO will handle the issue and how this process will progress if China turns to the World Trade Organization (WTO) to object to a possible future tariff of the European Union.
For now, the reactions of the member states to this decision of the commission have been different. In contrast to Germany, France is not strong in the automotive sector on the Chinese market, which makes it easier for Macron to support Ursula von der Leyen’s decision. At the same time, it is clear that this anti-subsidy decision has divided Germany in two. German Economy Minister Robert Habeck has warned that German carmakers “fear” they could face retaliation if the EU imposed tariffs on Chinese electric vehicles following a new anti-subsidy investigation. [2] On the other hand, German Foreign Minister Annalena Baerbock said that the EU should reduce its dependence on China and that she supports the EU’s investigation into Beijing’s subsidies to the electric vehicle industry.[3]
In fact, this is not the EU’s first anti-subsidy effort against China. In 2012, Europe tried to implement anti-dumping and anti-subsidy measures on solar panels to protect the European solar energy sector from Beijing, but these efforts went nowhere. The reason for the EU’s failure at that time was seen as the lack of consensus among member states. It remains to be seen whether the policy moves undertaken by the EU to reduce economic dependence and strengthen its economic security will achieve the desired result this time.
Although China’s market share in the electric car sector in Europe and the fact that this share is set to increase puts Europe in a difficult situation, this situation is due to the Union’s inability to foresee the risk in the electric vehicle sector at that time. As Deputy Prime Minister Matteo Salvini explained after EU President Von der Leyen’s statements on China and electric cars: “Lega has been condemning this risk for years; Europe is just waking up.”[4]
Moreover, since Germany is China’s largest European trading partner, any decision made and implemented by Europe against China will affect Berlin more than other member states. The EU’s possible anti-subsidy demand for Chinese electric vehicles could lead to a trade war with Beijing. Even as Chinese electric vehicles threaten Germany’s dominance in the automotive industry, the possibility of retaliation from Beijing makes German companies uneasy. Therefore, in a potential trade war between Europe and Beijing, Germany’s strategy of protecting its interests may prevail, and it may not be able to give a “European response” as the EU expects from it.
In summary, the new economic dependencies and political weaknesses that have changed and emerged after COVID-19 have added a new dimension to the commercial partnership between German Chancellor Olaf Scholz and Chinese Premier Li Qiang. Berlin has a great responsibility to remain a provider of European growth. In addition to transitioning towards a green economy, it must create a competitive and innovative environment for its economy. Germany wants to reduce its dependence on the Chinese market to preserve its status quo and protect its interests.
Even if this new strategy of the Scholz government worries Beijing, Germany cannot realize this desire for now. Time will tell the long-term consequences of Germany’s risk reduction policies and whether the EU will achieve the desired results from its decisions to protect its economic security. However, Europe will undoubtedly be unable to rebalance its trade relations with China soon.
1 “Germany and China Try to Reset for a Changed World”, The New York Times, https://www.nytimes.com/2023/06/19/world/europe/germany-china-relations.html, (Erişim Tarihi: 19.06.2023).
2 “German Carmarkers ‘Afraid’ Of China Retaliation, Economy Minister Warns”, Politico,
https://www.politico.eu/article/german-carmakers-afraid-of-chinese-retaliation-economy-minister-warns/, (Erişim Tarihi: 23.09.2023).
3. “Europe Must Cut Down on Its Dependence With China, Baerbock Says”, Bloomberg, https://www.bloomberg.com/news/articles/2023-09-17/baerbock-says-europe-must-cut-down-on-its-dependence-with-china?srnd=europe-politics&leadSource=uverify%20wall#xj4y7vzkg, (Erisim Tarihi: 18.09.2023).
