China shock 2.0: The cost of Germany’s complacency
Think tank: Centre for European Reform
Author(s): Sander Tordoir; Brad Setser
May 20, 2026
This report from UK think tank the Centre for European Reform argues that China’s export-driven growth model poses a challenge to Germany’s manufacturing economy.
Germany’s industrial model is under mounting pressure from a second China shock – and Berlin can no longer afford to wait for the problem to correct itself. A new study by the Centre for European Reform (CER) and Council on Foreign Relations (CFR), ‘China shock 2.0: The cost of Germany’s complacency’, argues that China’s unbalanced, export-driven growth model poses a profound challenge to Germany’s manufacturing economy.
The report comes as the European Commission prepares a high-level debate on economic security and China on May 29th, ahead of a June European Council expected to focus heavily on trade defence and Europe’s response to growing Chinese overcapacity. Today’s China shock strikes directly at the core of Germany’s economy: cars, machine tools, chemicals, aircraft and clean tech. And China’s industrial surge is accelerating, not slowing. Chinese export volumes grew more than twice as fast as global trade in 2025, with growth accelerating further in early 2026. China’s fourth-quarter 2025 car exports already hit 10 million vehicles on an annualised basis – a level analysts had only expected by the end of the decade. Germany risks sleepwalking into deindustrialisation.
Since 2023 alone, Germany has lost 3 per cent of GDP in net exports, much of it linked to China’s distortions. The drivers of China’s surplus persist, including weak domestic demand dragged down by the property bust, cheap credit for manufacturing, and an undervalued currency. China’s new five-year plan doubles down on manufacturing expansion and technological self-reliance, auguring even more export-led growth ahead.
The report urges Berlin to support broader EU sectoral safeguards and trade-defence instruments, including a European equivalent of America’s Section 301 trade powers, allowing Brussels to respond to economy-wide distortions such as China’s persistent currency undervaluation.
