German-Chinese Trade

There is no country as important to German enterprises as the Middle Kingdom: In 2018, the two countries reached a trade volume of EUR 199 billion Euro (USD 225 billion) – making China Germany‘s biggest trade partner for the third time. Chinese exports reached EUR 106 billion, while German exports totaled EUR 93 billion.

This article sheds light on the consequences for German exports to China, should the Sino-American trade war further escalate. For an article about the investment climate for German SMEs in China during the current trade war, click here.

The Trade War and Its Risks for German SMEs

In 2018, the trade volume between the US and China totaled USD 660 billion. The US imported USD 540 billion worth of goods from China. The Chinese demand for American goods reached USD 120 billion.

The Chinese trade surplus is driving demand for foreign goods. Less trade with the US may lead to less Chinese demand for high quality products from Germany. As Bloomberg reported, the trade war is already having a negative impact on sales of German cars in China.

Risk factor investment drought

Another consequence is that Chinese foreign direct investment (FDI) in Germany might dry up, due to shrinking surpluses from the US. In 2018, Chinese enterprises invested EUR 17 billion (USD 19 billion) in Europe. This was 40 per cent less than the previous year.

The risk for German exports is not unsubstantial: Electronics, cars and machinery account for more than two thirds of German exports. German SMEs specialize in these areas and provide high quality products – though at a high price. Should China lose out on their US surplus, customers might choose domestic alternatives.

When two People quarrel, German SMEs rejoice

However, less trade between China and the US also creates great opportunities for German SMEs: On May 10 2019, the US government imposed a 25 percent tariff on Chinese goods worth USD 250 billion. President Donald Trump has since announced that the remaining exports of 325 billion USD might also be taxed at 25 percent:

The trade volume between the US and China did, indeed, shrink significantly: During the first four months of 2018, the trade volume reached 206 billion USD. In 2019, it dwindled to 163 billion USD.

Airplanes, soybeans, automobiles and semiconductors make up 28 percent of US exports to China. With the exception of soybeans, German SMEs reach a high level of competitiveness in the remaining three areas. Therefore, especially suppliers of Airbus, semiconductor manufacturer Infineon and German auto companies might profit from an escalating trade war.