German trade dynamics are shifting as the US replaces China as Germany’s top trade partner in the first quarter of 2024. This change can be attributed to geopolitical tensions, such as the Russia-Ukraine war, and competition in the electric vehicle (EV) industry. The European Union (EU) recently imposed tariffs on Chinese EVs, following the Biden administration’s decision to impose 100% tariffs on them as well. These tariffs aim to counter unfair advantages from Chinese government subsidies that have fueled Chinese EV production.
The number of Chinese EVs sold in Germany has increased significantly, making up about 41% of Germany’s imported EVs from January to April. German car companies like BMW, Porsche, and Volkswagen heavily rely on the Chinese market, with nearly a third of German car sales in 2023 coming from China. However, this reliance on China leaves the German automotive industry vulnerable to a potential trade war.
Germany’s economy minister, Robert Habeck, recently visited China to discuss trade with Chinese officials. Chinese officials expressed hope that the EU would drop its tariff proposals and even considered offering luxury perks to German automakers. Previously, China had taken retaliatory steps against other countries before imposing tariffs.
Germany’s export to China has experienced a decline of 14% in May year-over-year, while exports to the US increased by 4.1% during the same period. This decline in exports to China is seen as a sign of vulnerability in trade relations. Habeck pointed out that China’s support for Russia’s war in Ukraine has had a negative impact on economic ties between Germany and China.
While changes in trade dynamics between Europe and China remain uncertain, the US has a clear trade policy. Both Trump and Biden aim to protect American manufacturing through tariffs on China. Biden’s recent tariff hike on Chinese EVs aligns with his goal of increasing the share of new US vehicle sales accounted for by EVs to 50% by 2030. The 100% tariff on Chinese EVs is a preventative measure aimed at keeping Chinese EVs out of the US market.
The use of industrial policy, such as tariffs, has significantly increased in recent years, signaling a new era of government intervention in trade. While 37% of China’s EV exports by value from January to April went to the EU, Chinese and European officials will meet in Brussels to discuss trade further and determine whether to adopt strict tariffs or a more lenient approach.
While tariff debates continue in the West, China’s EV production continues to thrive, and there is certainly demand for Chinese EVs from the rest of the world. The shifting trade dynamics between Germany, China, and the US highlight the influence of geopolitics and competition on global trade. As tensions persist and governments seek to protect their domestic industries, trade relationships will continue to evolve, impacting various sectors of the economy.