A new study by the Institute of the German Economy (IW) reveals a significant shift in trade dynamics between Germany and China during the first five months of 2025. The data indicates a 14 percent decline in German exports to China, while imports from China have increased by approximately 10 percent during the same period. This development effectively reverses China’s previous status as a key growth market for German exports.
The most pronounced changes are observed in the trade of metal products, where exports to China plummeted by roughly 25 percent, accompanied by a concurrent 25 percent rise in imports. Similarly, the automotive sector (-36 percent in exports) and electrical equipment (-16 percent in exports) are exhibiting concerningly weak performance. These trends collectively contribute to a reduction in German value creation and employment.
Jürgen Matthes, a trade expert at the IW and the study’s author, characterized the situation as a “China shock”. He highlighted the long-known practice of Chinese government subsidies, but emphasized a previously underestimated factor: a significant, artificial undervaluation of the Yuan against the Euro. This currency manipulation, combined with subsidies, enables Chinese companies to offer products at exceptionally low prices, contributing to the stark difference in trade flows.
Matthes argues that China is employing unfair trade practices and calls for decisive action. He suggests the European Union should adopt stronger trade policies to ensure a level playing field for all. He notes a positive, albeit limited, effect – a 38 percent drop in Chinese electric vehicle imports – following the implementation of European counter-tariffs on Chinese electric vehicles.
The imbalance in trade relations was also a focal point during the recent EU-China summit held in Beijing. European leaders voiced concerns regarding Chinese export controls on rare earth elements and urged for progress in opening Chinese markets.