China Severely Hits Germany's Industrial Stronghold, EU Trade Defenses Lagging

For decades, thousands of world-class manufacturers forming the backbone of the German economy have relied on an impregnable moat: unparalleled quality. Today, this moat is drying up due to China's low-price competition.

Germany's Mittelstand refers to a vast group of medium-sized manufacturers, primarily focused on capital goods and intermediate products, and highly dependent on exports. These companies once thrived by manufacturing machinery for global factories. But now, China is closing the quality gap and offering prices at half that of European competitors.

This marks the first time in decades that advanced capital goods imported from China have exceeded Germany's exports to China. German manufacturers have suddenly found themselves on the defensive, both in China and other overseas markets, as well as in their home base.

According to a report released in May by the financial auditing firm EY, German industry is losing over 10,000 jobs per month. From February 2022 to early 2026, German industrial output is projected to decline by about 10%, with energy-intensive sectors seeing a drop of over 15%.

Data from Apollo Global Management shows that on a 12-month rolling average, Germany's trade balance for capital goods with China shifted from a surplus of approximately €750 million to a deficit of €500 million between mid-2024 and August 2025.

European leaders are seeking new legal weapons to counter China. According to Chinese customs data in USD, China's total goods exports to Germany increased by 17% year-on-year by May this year, while exports to the EU grew by 16%.

Following an unprecedented real estate market collapse, China is increasingly relying on manufacturing to drive economic growth. Facing weak domestic demand and inventory buildup, Chinese factories are aggressively selling overseas, contributing to a record trade surplus of $1.2 trillion last year.

Now, when manufacturers in Eastern or South America set up new factories, they can procure their entire production ecosystem from a single Chinese supplier in a 'one-stop shop,' including injection molding machines, robotic arms, dryers, and cloud management software.

The Centre for European Reform, a London-based think tank, bluntly warned in a recent report: "China has eaten much of Germany's industrial 'lunch' and is now eyeing their 'dinner'."

German medium-sized enterprises, long proud of their adherence to free trade principles, have recently begun seeking government protection to cope with competition from state-backed Chinese companies.

The European Union has initiated a record number of trade investigations against China in the past two years, but these measures cover only a small fraction of Chinese imports. Broader and tougher trade defense measures discussed at the Brussels summit in June may take a year or longer to implement. (Editor: Chu Chien-ling / Chiu Kuo-chiang) 1150706

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