The trade relationship between Germany and China has become like a complicated friendship where both sides need each other but don’t always agree on the rules. Germany and China traded €163.4 billion worth of goods in just the first eight months of 2025, making China Germany’s biggest trading partner once again. It’s like having a friend who becomes your study buddy because you both have different strengths to share.
However, this friendship has some serious problems brewing underneath. Germany imported much more from China than it exported, creating a massive $77 billion trade deficit. Think of it like always buying lunch from a friend but they rarely buy from you in return.
German exports to China dropped 12.3% while imports from China jumped 8.5% in early 2025. This imbalance makes German leaders nervous about depending too much on their eastern partner.
The heart of the problem lies in what economists call “de-risking.” Germany’s 2023 China Strategy treats China more like a competitor than a partner, focusing on reducing dangerous dependencies. This approach mirrors successful diversification strategies used by investors to manage risk across different assets and reduce exposure to any single market.
Germany relies heavily on China for rare earth materials needed in electric car batteries and magnets. China controls 94% of global permanent magnet manufacturing, giving them enormous power over industries Germany cares about.
German automakers face particular challenges as China dominates the electric vehicle supply chain while German companies still focus heavily on traditional combustion engines. It’s like being really good at making horse carriages when everyone wants cars.
German motor vehicle exports to China fell considerably in 2025 as Chinese companies became stronger competitors.
Despite these tensions, both countries continue working together. Chancellor Friedrich Merz plans to visit China in 2025, and both sides recently reaffirmed cooperation in automotive technology and hydrogen energy. China has also signaled further opening of its financial markets to German asset managers and insurers.
German companies are adapting by localizing their operations in China and creating backup supply chains. Germany has implemented stricter investment screening laws that lower the threshold for foreign acquisitions to just 10% in sensitive firms.
The relationship isn’t ending but evolving. Germany wants to keep trading while protecting its strategic interests.
Both countries are learning to balance economic benefits with national security concerns, creating a more cautious but potentially more stable partnership for the future.
