Germany’s Trade Deficit with China Heads for Record as Exports Slump

Germany's export machine is sputtering—and China's holding the wrench.

The Numbers Don't Lie

Forget balanced ledgers. Germany's trade gap with its largest trading partner is ballooning toward historic levels. The culprit? A stark, one-sided slump in what Germany sends east. The figures paint a picture of a fundamental rebalancing, where German industrial might is meeting unprecedented resistance.

A One-Way Street

This isn't a minor correction. It's a structural shift. While German factories grapple with energy costs and global demand shifts, the flow of goods has become dangerously lopsided. The deficit isn't just growing; it's accelerating, signaling a deeper economic decoupling that no amount of traditional fiscal policy can easily fix.

Finance's favorite pastime? Calling a temporary dip a 'strategic recalibration' right up until the quarterly report lands.

The old playbook is obsolete. In a world of fragmented supply chains and digital asset flows, clinging to 20th-century trade models looks increasingly like a bet against the future. The real record being set might be in missed opportunities.

Auto exports slide as competitiveness weakens

Holger Goerg, who leads international trade research at the Kiel Institute for the World Economy, said reversing this decline will be hard in the NEAR term. He pointed to fading competitiveness as the core problem. Germany’s automotive sector, long treated as untouchable, is now under clear pressure.

According to the GTAI forecast, global exports from Germany’s car industry are set to drop 3.2% this year.

Competition from China is hitting hardest in electric vehicles. Chinese EV makers are pushing aggressively not just inside their home market but across Asia, squeezing established German brands. Data from Deutsche Bank shows German auto exports to China fell about 5% year on year during the first seven months of 2025. The bank flagged the decline as a major factor behind the swelling trade gap.

The shift is not limited to sales figures. Major manufacturers, including Volkswagen, are increasingly building cars locally under the “in China, for China” approach. Beijing supports this model. It replaces exports from Germany with vehicles made inside China, cutting trade flows back to Europe.

Goerg said foreign direct investment from Germany into China now comes mostly from reinvested profits rather than fresh capital. Existing companies are expanding their local footprint instead of shipping more goods from home.

“Chinese overcapacity is a fairly recent thing,” Goerg said. “It’ll be making a very simple interpretation to say that this is all due to Chinese competition and really take away from the structural problems.”

Political risks grow as production shifts east

Analysts warn that the economic costs could spill into politics. Jacob Gunter, lead analyst at the Mercator Institute for China Studies in Berlin, said the relocation of production threatens jobs and tax revenue inside Germany. “That’s good for those companies, but it’s not necessarily good for Europe or for Germany,” Gunter said.

He added that moving supply chains also means shifting research and development roles that were once kept in Germany. That raises the risk of public backlash.

“If things keep on going this badly for another few years, there will eventually be such a backlash, and China will go from selling more and more to selling very little,” Gunter said.

Still, Goerg pushed back against blaming everything on China. He said Germany’s troubles did not start this year. Years of weak investment in technology and persistently high energy costs have weighed on the industry well before current trade tensions.

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