Germany's ruling coalition calls on EU to counter unfair competition, pointing to China's overcapacity

Germany has long been one of the most cautious countries in Europe to deal with trade barriers to China. The reason is simple: China is both an important market for German enterprises and an important supply chain node for Volkswagen, BMW, Mercedes, chemical and machinery manufacturing enterprises. Berlin has long worried that Beijing could retaliate for German enterprises if trade measures were too tough on Chinese goods.

But that caution is changing.

A policy document recently adopted by Germany’s ruling CDU/CSU and SPD Parliamentary Party calls on the EU to respond to “market distortions and unfair competition” and advocates a faster and wider use of anti-dumping and anti-subsidy measures. Reuters on August 28 that German parliamentarians involved in policy discussions said policy recommendations were mainly aimed at the impact of China’s industrial surplus capacity on the European market.

The document does not directly write "China", but the contradictions are clear

The policy document itself does not directly refer to China, so it cannot be written "toward China" as the original text of the document.

But German parliamentarians who participated in the discussion said that one of the policy focuses on China’s industrial overcapacity, especially the pressure on domestic manufacturing after large amounts of automobiles and industrial products entered the European market.

The German Socialist Union has also previously publicly proposed that economic relations with China should shift from “dependence” to “fair competition” and classify rare earth, critical raw materials, market access and state subsidies as strategic risks.

Germany’s biggest concern is the automotive industry.

The most obvious pressure industry is the car.

China's electric vehicles have rapidly expanded their market share in Europe in recent years, while China's domestic automobile production capacity is significantly higher than local demand.The European industry community believes that Chinese automakers receive government funding, land, electricity, industrial funds and other policy support, so that European companies face unequal competition.

The German ruling coalition therefore suggests that when Germany develops a future electric vehicle subsidy policy, it should consider adding local production or local value content standards that comply with EU law.

This means that German taxpayers’ electric vehicle subsidies in the future may put more emphasis on local production in Europe, rather than automatically flowing to vehicles that depend on Chinese production and imports.

The German industry has also changed the attitude of the past.

Change is not just happening in the government.

The German industry has often opposed trade barriers in the past, as many large companies rely heavily on the Chinese market.

German enterprises and industrial organizations are increasingly concerned that Chinese companies relying on state support to expand exports will further erode German manufacturing’s share in the home market in Europe.

This is also why the CDU has repeatedly emphasized "fair competition rather than dependence". related policy statements show that the German political world is seeing economic relations with China more as an issue of industrial security and competition policy, and no longer just an issue of export markets.

The German Bundestag is concerned about Chinese car companies using European capacity

A parliamentary questionnaire released by the German Bundestag in June revealed that Greens have asked the federal government to explain whether Chinese automakers, subsidiaries, joint ventures or joint ventures have established, expanded, rented or acquired production facilities in Germany and the EU since 2020.

Parliament documents clearly mention that the outside world has that Chinese automakers and European automakers are discussing using European vacant factories to produce Chinese brand vehicles, and may thus circumvent some of the tariffs.

Readers can check through the entry of the original Parliamentary document "The German Federal Assembly: China invests in European automakers" accompanied by this article.

This shows that Berlin is already concerned not only with "Chinese goods imports", but also with how Chinese capital enters the European industrial system, and whether local production could change the effects of the EU's existing trade defense measures.

Europe is re-evaluating China’s state subsidy model

There is a bigger European debate behind the German policy shift: how to judge whether Chinese companies’ competitive advantage comes from efficiency or from state support.

Whether there is a dumping or unfair subsidy in trade law requires the European Commission to investigate specific industries, specific enterprises and specific products.

But for Germany, the problem has expanded from a single enterprise to the industrial policy model itself.

If an industry has long-term access to massive financing, land, electricity or other policy support and has a production capacity significantly exceeding national demand, European governments face a realistic choice: to continue to rely on open markets to digest imports, or to use anti-subsidy, anti-dumping and local production rules to protect domestic industries.

Berlin is no longer only concerned about China’s retaliation

One of Germany’s core concerns in the past is that if the EU takes tough measures against China, China could in turn restrict German automobiles, machinery or chemical products from entering the Chinese market.

Now another risk Germany faces is getting bigger: if no action is taken, Chinese companies could further expand their share in the home European market, and German manufacturing itself could be under greater pressure.

This means Berlin is re-calculating costs.

The question of the past was “will hard work hurt German companies?” and the question of the present is “will German manufacturing remain competitive without hard work?”

Next Central European trade conflict may be more institutionalized

The measures currently proposed by the German ruling coalition are not yet a new tariff decision.

But the political significance is that Europe’s largest industrial economies are more openly supporting the use of EU trade defense tools.

If the German government eventually pushes these demands to the EU level, there could be more frequent counter-subsidy investigations, stricter origin and local content requirements, investigations into tariff evasion, and stricter scrutiny of Chinese companies involved in state subsidies.

Europe’s economic policy towards China could thus shift from past “risks reduction” to more proactive industrial defense.

For Beijing, this shift may be more difficult than a single tariff, as it means the political and industrial bases of Germany’s past opposition to a tough policy against China are changing.

Focus on China will continue to track the official policy documents of the German ruling coalition, follow-up discussions in the German Bundestag, and whether the European Commission will introduce new anti-subsidy, anti-dumping or local production measures.