Germany faces China trade shock risk as bilateral imbalance hits $94 billion
Synopsis
A Brussels think tank is warning that Germany — not the US — is now the primary target of China's export machine. With a $94 billion bilateral trade imbalance, a programme explicitly targeting German mid-sized suppliers, and political leaders slow to respond, the CER argues Europe's largest economy is sleepwalking into the same industrial hollowing-out that devastated American factory towns two decades ago.
Key Takeaways
The Centre for European Reform (CER) has warned Germany it risks repeating the United States' early-2000s deindustrialisation.
China's trade surplus with Germany reportedly doubled between 2024 and 2025 , producing a $94 billion bilateral trade imbalance. 'China Shock 1.0' cost the US up to 2.5 million jobs and triggered social crises in industrial towns.
Beijing's '10,000 little giants' programme is directly targeting Germany's Mittelstand of mid-sized industrial suppliers.
The CER urges Berlin to back Paris in pushing the IMF and G7 to confront China's currency undervaluation.
Cities including Wolfsburg and Stuttgart — bases of Volkswagen and Mercedes-Benz — are flagged as particularly vulnerable.
Germany risks mirroring the United States' early-2000s deindustrialisation wave if it fails to reckon with China's export-driven industrial model, according to a report by the Brussels-based Centre for European Reform (CER). The warning comes as bilateral trade imbalances widen sharply and Chinese industrial policy increasingly targets the heart of Germany's manufacturing base.
The Scale of the Imbalance
China's trade surplus with Germany reportedly doubled between 2024 and 2025, reaching $25 billion and creating an overall bilateral trade imbalance of $94 billion. According to the CER report, this reflects a sustained fall in demand for German industrial goods — a structural deterioration, not a cyclical dip.
'Germany remains hesitant, even as China has already eaten much of German industry's lunch and is preparing to start on dinner,' the CER said, according to The Guardian.
The 'China Shock' Warning
The report draws a direct parallel to what economists call 'China Shock 1.0' — the wave of import competition from China in the early 2000s that inflicted severe damage on the United States, contributing to job losses of up to 2.5 million and a documented rise in suicides and drug dependency in affected industrial towns.
The CER argues that a second China shock is now underway, driven by President Xi Jinping's five-year policy cycles. This time, the report warns, the impact is 'more consequential in Germany than in any other country and is worsening.' Cities such as Wolfsburg and Stuttgart — home to Volkswagen and Mercedes-Benz respectively — are cited as particularly exposed.
Beijing's Targeted Industrial Strategy
A key concern flagged in the report is Beijing's '10,000 little giants' programme, which specifically targets Germany's Mittelstand — the network of mid-sized industrial suppliers that underpins much of the country's export competitiveness. The CER attributes the trade imbalance to a combination of weak domestic demand in China, an 'extremely unfavourable' exchange rate, and deliberate Chinese industrial policy aimed at displacing German producers.
A separate recent report noted that China's advances in electric vehicles (EVs), solar panels, and batteries owe less to a unified master plan than to political centralisation combined with intense inter-provincial and inter-city rivalry — a dynamic that has accelerated output regardless of profitability.
What Germany and Europe Should Do
The CER report urges Berlin to take an offensive posture rather than a defensive one, specifically calling on Germany to support France in pressing the International Monetary Fund (IMF) and the G7 to formally confront China's currency undervaluation and what it describes as a 'one-sided trade model.' The think tank also criticised German political leaders for having 'struggled to see the problem clearly', suggesting that domestic political hesitancy has delayed a coherent European response.
With the European Union already navigating trade tensions on multiple fronts, the CER's findings add pressure on Germany — the bloc's largest economy — to shift from cautious engagement to active trade diplomacy before the structural damage becomes irreversible.
Point of View
Partly because its auto and chemical giants built their post-2008 growth on Chinese demand. But that dependency is now a liability. The $94 billion imbalance is not a negotiating chip — it is evidence that the trade relationship has structurally tilted. What the report does not fully address is Europe's collective action problem: Germany cannot pressure the IMF or G7 alone, and France's appetite for confrontation with Beijing has its own limits. The more uncomfortable question is whether German hesitancy is strategic ambiguity or simply capture by industrial lobbies that still believe China can be managed through engagement.
NationPress
6 Jul 2026
Frequently Asked Questions
What is the Centre for European Reform's warning about Germany and China?
The Centre for European Reform (CER) has warned that Germany risks repeating the US deindustrialisation of the early 2000s if it does not respond to China's expanding trade surplus and targeted industrial policies. The bilateral trade imbalance currently stands at $94 billion, according to the report.
What was 'China Shock 1.0' and why does it matter for Germany?
'China Shock 1.0' refers to the wave of Chinese import competition in the early 2000s that cost the United States up to 2.5 million jobs and contributed to social crises in industrial towns. The CER argues a second, comparable shock is now under way, with Germany as its primary target rather than the US.
Which German cities and companies are most at risk?
The CER report specifically names Wolfsburg and Stuttgart — home to Volkswagen and Mercedes-Benz respectively — as cities facing a similar future to US industrial towns that lost manufacturing to China. Germany's broader Mittelstand of mid-sized suppliers is also directly targeted by Beijing's '10,000 little giants' programme.
What is China's '10,000 little giants' programme?
It is a Chinese government initiative that specifically targets mid-sized industrial suppliers — analogous to Germany's Mittelstand — with the aim of developing domestic Chinese alternatives. The CER views it as a deliberate policy to displace German industrial suppliers from global supply chains.
What action is the CER urging Germany and Europe to take?
The CER is urging Berlin to take an offensive role by supporting France in pushing the IMF and G7 to formally address China's currency undervaluation and one-sided trade model. The think tank has criticised German political leaders for being slow to recognise the scale of the problem.
