Germany’s trade focus may shift from China to US Reuters

Maria Martinez

BEIJING (Reuters) – German Economy Minister Robert Harbeck will stress Germany’s determination to pursue commercial ties with China during a visit that starts on Friday, but trade experts say economic and political factors are all increasingly favourable to U.S.-German ties.

Harbeck is trying to explain to Chinese authorities the European Union’s recently announced tariffs on Chinese-made electric vehicles, while also trying to mitigate the risk of retaliatory measures from China that could hit the company’s export business to Germany.

Already, German trade with China is expected to reach 60 billion euros ($64 billion) in the first quarter of 2024, below the 63 billion euros of combined U.S.-German trade, breaking a trend that had seen China become Germany’s largest trading partner for eight consecutive years.

Official figures released on Friday underscored the shift: German exports to China fell 14 percent in May from a year earlier, while exports to the United States rose 4.1 percent.

A real estate crisis, high local government debt and other problems have sapped economic activity within China, and some say it could face a period of stagnation similar to Japan’s “lost decades” that began in the 1990s.

For now, Germany’s trading partners are continuing to focus on the Chinese market, believing demand will recover in the coming years, said Maximilian Butek, secretary general of the East China German Chamber of Commerce.

“However, if private sector and consumer confidence in China remains low, the United States could consolidate its position as Germany’s main trading partner,” he said of the possibility of the U.S. solidifying its top position.

German export growth is already being slowed by the fact that China, a long-time customer for German cars, machinery and pharmaceuticals, is moving up the value chain and producing more complex products itself.

But the bigger question is how severe the impact will be of Germany’s stated intention to reduce its overall trade exposure to China, which it accused of “unfair practices” in its first-ever China strategy paper last year.

The German government has so far been vague about policy measures to reduce dependence, other than expressing a desire to deepen ties with partners such as South Korea.

But Jurgen Matthes, head of international economic policy at the German Institute for Economic Research (IW), saw the start of a paradigm shift away from the close China-Germany ties nurtured by former Chancellor Angela Merkel throughout the 2000s.

“There appears to be a geopolitically motivated reorientation taking place — away from a systemic rival, China, and toward a transatlantic partner, the United States,” he said.

All of this would be up in the air if Donald Trump wins the US presidential election in November and pushes the US in a more protectionist direction by increasing tariffs on imports from all countries, which could escalate into a global trade war.

A report published this month by consulting firm Roland Berger concluded that such a scenario would have a devastating effect on all major economies, with China and the United States being hit even harder than Europe.

In the longer term, it could split the planet into two incompatible trading blocs — an extreme version of the “fragmentation” of the global economy that the International Monetary Fund has warned about.

© Reuters. German Vice Chancellor and Minister of Economics Robert Herbeck speaks to reporters after visiting Panmunjom, the demilitarized zone between South and North Korea, in the city of Paju, South Korea, June 21, 2024. REUTERS/Maria Martinez

That would create tough commercial and geopolitical choices for an export-oriented economy like Germany.

“Trump will force European countries to decide whether to side with China or the US,” said Stephan Schaible, global managing partner at Roland Berger, adding that Germany would certainly have to choose a NATO ally.


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