Key facts
- German Chancellor Friedrich Merz stated the Chinese yuan is undervalued by 30% and that China is using high subsidies to flood markets.
- Merz suggested addressing these trade imbalances through negotiations similar to the Plaza Accords.
- Several EU member states have pushed for a tougher stance on Chinese overcapacity and unfair trade practices.
- Germany has indicated it is open to discussing stronger EU trade defense measures.
- Germany's trade deficit with China widened to €360 billion last year.
German Chancellor Friedrich Merz signaled a significant shift in Berlin's economic policy towards China, stating that the Chinese yuan is undervalued by approximately 30% and that China's use of "high subsidies" is leading to "overcapacities" and "flooding markets." Speaking after a European Council summit in Brussels, Merz described the situation as "not acceptable" and suggested that matters could be addressed through negotiations akin to the "Plaza Accords."
Merz's remarks represent some of his strongest criticisms of Beijing since taking office, directly addressing concerns about industrial overcapacity that have troubled European leaders. The perceived undervaluation of the yuan makes Chinese goods cheaper internationally, contributing to a widening trade deficit for the EU and threatening European manufacturers.
This development comes as several EU member states, including France, Spain, and Italy, have been pushing for a tougher stance against China's trade practices. While Germany has historically been more cautious, seeking to maintain dialogue and cooperation, the recent signals from Chancellor Merz suggest a potential alignment with a more assertive EU strategy. German Trade Minister Katherina Reiche is currently in Beijing to foster industrial ties, even as the trade deficit deepens.
Despite the challenges, China remains Germany's most important trading partner, with a substantial bilateral trade volume. Around 5,200 German companies operate in China, particularly in the automotive, mechanical engineering, and electrical sectors. However, these industries are increasingly facing pressure from Chinese competitors benefiting from state subsidies. The European Commission, under President Ursula von der Leyen, is also exploring ways to strengthen the bloc's trade defenses.