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Germany’s Merz Presses China to Curb Subsidies Amid €90B Trade Deficit

Germany’s Merz Presses China to Curb Subsidies Amid €90B Trade Deficit
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Germany’s Chancellor Friedrich Merz used his first official visit to Beijing to warn that China’s surging trade surplus with Europe’s largest economy was “not healthy,” pressing Xi Jinping’s government to curb industrial subsidies, ease export controls and allow fairer competition while still courting Chinese investment and orders for German firms nytimes +1.

Merz’s two-day trip, accompanied by around 30 senior executives, came as German business leaders warned that Chinese overcapacity, subsidies and a weak renminbi were accelerating deindustrialization in key sectors such as autos and machinery economictimes. Germany imported €170.6 billion of goods from China in 2025 while exporting just €81.3 billion, leaving a trade gap of roughly €90 billion that Merz said had quadrupled since 2020 bbc +1. Beijing responded with pledges to “import more high-quality goods from Germany” and signed five relatively narrow cooperation deals, but stopped short of public commitments on the structural issues Berlin raised nytimes.

Merz’s Balancing Act: Tough Talk, But No Decoupling

In meetings with Premier Li Qiang and President Xi, Merz called for “deeper, fairer economic cooperation,” asking Beijing to scale back state subsidies that flood global markets with cheap industrial goods, relax politically sensitive export controls on critical raw materials, and let its currency strengthen to reduce price distortions nytimes +1. Yet he also reiterated that “decoupling” from China would be a “mistake,” describing the trade relationship as vital for German jobs and growth bbc.

Chinese readouts stressed openness and mutual benefit, with Li promising to “actively address the reasonable demands of foreign‑invested enterprises” and highlighting opportunities in autos, chemistry, AI and biomedicine nytimes. Merz welcomed a headline pledge that China would buy up to 120 European-made Airbus aircraft and signaled he wanted more Chinese investment in Germany, telling a business audience in Beijing that “we want Chinese investment in Germany” even as he demanded a more “balanced, reliable, regulated and fair” partnership nytimes +2.

German Industry and the EU Turn Up the Pressure

The Asia‑Pacific Committee of German Business, representing major industrial lobbies, warned ahead of the trip that Chinese “overcapacity, massive subsidies, distortive FX policy and politically motivated export controls” had become a “key challenge for prosperity and security in Europe,” urging a “robust” response if talks failed to deliver economictimes. Many manufacturers fear a replay of the earlier “China shock,” this time in electric vehicles, batteries and green tech, where Chinese firms are rapidly gaining market share economictimes +1.

Merz’s stance aligned Germany more closely with an emerging EU consensus. Brussels is already exploring tougher trade‑defence tools and has floated reassessing World Trade Organization rules such as “most-favoured nation” treatment for China to address what it calls systemic distortions straitstimes. French President Emmanuel Macron has warned that tariffs on Chinese goods may be unavoidable if the surplus keeps rising, while European Commission President Ursula von der Leyen has accused Beijing of limiting market access for European firms reuters +1. For now, however, Merz left Beijing with promises and sectoral deals rather than the sweeping policy shifts many in industry had hoped for; markets showed no pronounced reaction to the visit nytimes +1.

The Bigger Picture

Merz’s warning underscored how Europe’s biggest economy is trying to renegotiate its dependence on China without sparking an outright trade war at a time when it also faces tariff threats from Washington. The limited outcomes from Beijing suggest that Germany and the EU will increasingly have to decide whether to back their tougher rhetoric with concrete defensive measures, from anti‑subsidy probes to targeted tariffs, or risk watching the imbalance grow. How Berlin moves after this trip — and whether Beijing follows words with action — will shape not only Germany’s industrial future but the wider direction of EU‑China relations.