German trade focus may shift from China to US By Reuters

By Maria Martinez

BEIJING (Reuters) – Economy Minister Robert Habeck will underscore Germany’s determination to pursue trade ties with China during a visit starting on Friday, but trade experts say economic and political factors increasingly favor U.S.-German relations. .

Habeck will seek to explain to Chinese officials the European Union’s recent announcement of tariffs on Chinese electric vehicles, while claiming the risk of retaliation from China that could hurt German export business there.

Already, Germany’s 60 billion euros ($64 billion) of trade with China in the first quarter of 2024 was less than the total 63 billion euros of US-German trade. That broke a trend that has ranked China as Germany’s top trading partner for eight years in a row.

Official figures released on Friday underlined the change: German exports to China fell 14% in May from a year earlier while exports to the United States rose 4.1%.

A real estate crisis, high local government debt and other challenges are weighing on domestic Chinese activity, leading some to suggest it could face a period of stagnation similar to Japan’s “lost decades” beginning in the 1990s.

Maximilian Butek, executive director of the German Chamber of Commerce in East China, said that German trading partners for now remain committed to a Chinese market that they believe would see a recovery in demand in the coming years.

“However, if confidence in the private sector and among consumers in China remains low, it is possible that the United States will be able to establish itself as Germany’s main trading partner,” he said of a possible consolidation of US leadership.

German export growth is already being dampened by the fact that China – a longtime customer for its vehicles, machinery and pharmaceuticals – is moving up the value chain and thus producing more complex goods itself.

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

Beyond signaling its desire to deepen ties with partners such as South Korea, Berlin has so far been vague on policy steps to reduce dependencies.

But Juergen Matthes, head of international economic policy at the German Economic Institute IW, saw the beginning of a paradigm shift from the close China-Germany relationship nurtured by former Chancellor Angela Merkel during the 2000s.

“A reorientation – also geopolitically motivated – seems to be taking place: away from system rival China and towards transatlantic partner, the United States,” he said.

If Donald Trump were to win the US election in November and push the United States down a more protectionist path by raising tariffs on imports from all destinations, then all bets would be off in what could escalate into a global trade war.

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

In the long term, it would have the potential to split the planet into two mutually incompatible trading blocs – an extreme form of the global economic “fragmentation” the International Monetary Fund has warned about.

This would create tough trade and geopolitical choices for export-oriented economies like Germany.

“Trump will force the Europeans to decide which side they want to be on – with China or with the United States,” Roland Berger global managing partner Stefan Schaible said, adding that there was no doubt that Germany would have to chose its NATO ally.