- In the first quarter of this year, the United States replaced China as Germany’s largest trading partner.
- Geopolitical tensions over the Russia-Ukraine war and the electric vehicle race are shifting global trade.
- Germany’s economy minister visited China over the weekend to discuss EU tariffs on Chinese electric cars.
China has been Germany’s largest trading partner for the past eight years. But something has changed this year: the United States could catapult itself into the top spot.
According to German government data, trade between the United States and Germany reached 63.2 billion euros in the first quarter of 2024, surpassing trade between China and Germany at 60 billion euros.
While the difference is relatively small and the data only covers January through March, it highlights underlying trends: changing trade dynamics as geopolitics and competition influence new tariff policies and international flows of goods.
Germany’s economic ties with China are emblematic of a shift as trade between Western countries and China comes under increasing scrutiny amid conflicts like the Russia-Ukraine war and concerns about Chinese overproduction of things like electric cars and solar panels.
Electric cars are causing cracks
Automobiles are at the center of a new dispute between China and Germany, with the European Union recently imposing tariffs of up to 38.1% on Chinese electric vehicles following the Biden administration’s decision to impose 100% tariffs on Chinese electric vehicles.
The tariffs are in response to what European officials say are unfair preferential treatment due to Chinese government subsidies to encourage electric vehicle production in China. China’s electric vehicle industry has received up to $231 billion in government subsidies since 2009, according to Bloomberg.
According to the European Commission, the number of Chinese cars sold in the EU will increase from less than 1% of the market in 2019 to 8% in 2023.
The number of Chinese-made EVs sold in Germany increased almost tenfold between 2020 and 2023. About 41% of Germany’s EV imports from January to April came from China, according to government data.
Meanwhile, German car companies like BMW, Porsche and Volkswagen are heavily reliant on the Chinese market — about a third of German auto sales in 2023 are expected to come from China, according to Reuters — leaving the industry vulnerable to a trade war.
German Economy Minister Robert Harbeck traveled to Beijing over the weekend to discuss trade with Chinese officials. He is the first senior European official to visit China since the EU announced the tariffs, according to Reuters.
During Harbeck’s visit, Chinese officials said they expected the EU to drop its tariff proposals. Bloomberg reported that China is also considering offering luxury perks to German automakers to persuade the German government to ease tariffs.
So far, China has taken a retaliatory stance and launched an investigation. The move comes ahead of the introduction of tariffs on imports of French brandy and Spanish pork.
China’s support for Russia and supply chain issues increase tensions
German exports to China fell 14% in May from a year earlier, while exports to the United States rose 4.1% in the same period, according to data released by the German government on Friday.
According to the Financial Times, the decline in German exports to China is a sign of fragility in trade relations.
According to government data, trade between China and Germany will exceed that between Germany and the US by 50 billion euros in 2022. In 2023, the difference will fall to 700 million euros.
According to Bloomberg, Habeck said China’s support for Russia’s war in Ukraine was the main reason economic ties between the two countries had stagnated.
Trade between China and Russia is set to reach a record high of $240 billion in 2023. Meanwhile, only 13% of EU companies see China as their biggest investment destination, according to a survey by the European Union Chamber of Commerce in China.
Still, a report from the Atlantic Council think tank said decoupling between Europe and China is far from a reality and economic ties between Germany and Beijing remain strong.
Trade data can change from month to month, and some economists said not to look too closely at the May drop in German exports to China because monthly figures could change before any long-term trends emerge.
Oliver Rakow, an economist at Oxford Economics, told the Financial Times that the fall in German exports was also affected by other issues, including supply chain delays caused by the Red Sea conflict.
US trade policy is clear
While changes to trade between Europe and China are uncertain, in the United States, Trump and Biden have different approaches to the same goal of protecting American manufacturing through tariffs on China.
Notably, Biden’s tariffs on Chinese-made EVs are aligned with his goal of having half of new U.S. sales be electric vehicles by 2030.
According to Bloomberg, just 0.4% of China’s EV exports from January to April went to the US, and major Chinese EV companies like BYD don’t sell cars in the US.
In effect, the Biden administration’s 100% tariffs are a preventative measure to keep Chinese-made EVs out of the U.S. market.
Martin Wolf, chief economic commentator at the Financial Times, said the use of industrial policies such as tariffs has increased significantly in recent years, highlighting a new era of government intervention in trade.
According to Bloomberg, 37% of China’s EV exports from January to April went to the EU.
According to Reuters, Chinese and European officials are due to meet in Brussels this week to further discuss trade and decide whether to follow the US’s tough tariff policies or take a more relaxed approach.
As tariff disputes continue in the West, Chinese EV production continues and there is solid global demand.
