Friedrich Merz is weighing what to do about a €360 billion trade deficit with China — a gap that's putting pressure on Germany to rethink its economic ties with Beijing while trying to keep its auto industry competitive. The figure, covering the entire European Union's trade imbalance with China, has become a flashpoint in Berlin as the government balances export dependence against calls for strategic autonomy.
The scale of the deficit
€360 billion is not a rounding error. It represents the difference between what the EU sells to China and what it buys from the country, and Germany accounts for a big chunk of that gap. For years, German manufacturers — especially carmakers — relied on a steady flow of Chinese demand for luxury sedans and SUVs. But as China builds up its own auto industry and pushes into electric vehicles, the trade dynamic has shifted. Now Germany imports more from China than it exports there, and the deficit keeps growing.
Why the automotive sector is in the crosshairs
The trade deficit directly hits Germany's automotive sector, which is already struggling with the transition to electric cars, supply chain headaches, and competition from Chinese brands like BYD. If Merz moves to narrow the deficit — through tariffs, quotas, or investment restrictions — German carmakers could face retaliation in China, their biggest single market outside Europe. That's a risk the industry isn't eager to take. But doing nothing also carries a cost: the deficit signals that Germany's once-dominant car industry is losing ground in the world's largest auto market.
German automakers have been slow to roll out affordable EVs, and Chinese competitors have filled the gap. Meanwhile, Beijing has pushed its own brands harder, using subsidies and state backing to capture domestic market share. The result is a trade imbalance that leaves German politicians with few good options.
What Merz might do
Merz hasn't laid out a detailed plan yet. But his consideration of action suggests he's looking at tools like anti-subsidy investigations, tighter investment screening, or pushing for EU-wide measures against Chinese overcapacity. The European Commission has already launched a probe into Chinese electric vehicle subsidies, and Merz could lean on that to argue for higher tariffs. He may also try to revive talks with Beijing on market access for German companies, though similar efforts in the past have yielded limited results.
Strategic autonomy — the idea that Europe should reduce reliance on China for key goods and technologies — is central to his thinking. But that concept clashes with Germany's export-heavy economy, which has long depended on Chinese demand. Merz will have to square that circle without alienating either the car industry or his coalition partners.
The clock is ticking. The deficit is growing, not shrinking, and the pressure on Berlin to act is building. For now, Merz is considering his options. The auto sector is watching closely.
