Berlin – As German Chancellor Friedrich Merz prepares for a trip to China next week, the country’s powerful automotive industry is calling on Beijing to address what it sees as unfair trade practices and open its markets further. Hildegard Müller, President of the German Association of the Automotive Industry (VDA), emphasized the need for “reciprocal opening of markets” and urged China to present “constructive proposals” to reduce trade distortions, according to statements released ahead of the visit.
The pressure comes as German automakers grapple with declining sales in China, the world’s largest car market. Competition from heavily subsidized domestic electric vehicle (EV) brands, coupled with a new luxury tax impacting high-complete vehicles – particularly those from Germany – has significantly impacted their performance. The VDA is advocating for a level playing field, arguing that China has a “debt to repay” in terms of market access. This push for market liberalization is occurring amidst broader concerns about China’s economic influence and the potential for escalating trade tensions.
Müller cautioned against retaliatory measures from the European Union, specifically mentioning proposed “Local Content” rules – regulations favoring European-made components in public procurement, or imposing tariffs – warning they could provoke countermeasures from Beijing. The French automotive industry, which has a smaller presence in the Chinese market compared to its German counterparts, has been a vocal proponent of such measures. “Even if China is now called upon to make offers, Europe must generally weigh its actions and corresponding reactions,” Müller stated, adding that “depending on the decision, the domestic industry faces countermeasures from China.”
The call for a more balanced trade relationship reflects a growing anxiety within the German automotive sector about its future competitiveness in the face of China’s rapidly advancing technological capabilities. German vehicle exports to China have plummeted by approximately two-thirds since 2022, according to data from the EU’s statistics agency Eurostat. This decline coincides with the rise of Chinese EV manufacturers like BYD, which saw a more than 700% increase in electric vehicle sales in Germany last year, according to Deutsche Welle.
EU Tariffs on Chinese EVs Deemed a “Mistake”
Müller directly criticized the European Union’s imposition of tariffs on Chinese electric vehicles, labeling them a “mistake.” She believes the tariffs prompted China’s recent implementation of a luxury tax on imported cars, a move that disproportionately affects German manufacturers. The Reuters reports that Merz himself will seek “strategic partnerships” with China during his trip, aiming to discuss future cooperation between Europe and the world’s second-largest economy.
Shifting Chinese Economic Priorities Offer Potential Opportunity
However, the VDA president also expressed cautious optimism, noting that China’s upcoming Five-Year Plan may signal a shift away from heavy subsidies for the electric vehicle market. Industry sources suggest that the plan will not prioritize further incentives for EV production, as the government believes the transition to electric mobility is largely complete. This potential change in policy could alleviate some of the pressure on German automakers. “The trip offers the chance to gain a better insight into Chinese intentions – especially now, shortly before the adoption of the coming Five-Year Plan,” Müller said.
The German automotive industry is also hoping for a more stable and predictable regulatory environment in China. The recent introduction of the luxury tax, seen by many as a direct response to the EU’s EV tariffs, highlights the risk of escalating trade disputes. Müller emphasized the importance of avoiding actions that could provoke retaliatory measures from Beijing, advocating for continued dialogue and a commitment to open markets.
What to Watch Next
Chancellor Merz’s upcoming visit to China represents a critical juncture in the relationship between the two economic powers. The outcome of his discussions with Chinese officials will likely shape the future of trade and investment in the automotive sector for years to come. The focus will be on whether Merz can secure concrete commitments from China to address trade imbalances and create a more level playing field for German automakers. The coming months will reveal whether these efforts will lead to a more constructive and mutually beneficial economic partnership.
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