Germany Urged to End Admiration of Beijing, Face ‘China Shock 2.0’

Germany must stop admiring China’s economic success within the European Union or risk a deindustrialization similar to that experienced by the United States 25 years ago, a leading Brussels thinktank has warned.

China’s trade surplus with Germany doubled between 2024 and 2025 from $12 billion to $25 billion, creating a $94 billion trade imbalance. The Centre for European Reform (CER) said Europe’s largest economy could repeat the U.S. experience of 2001, when a sudden surge in imports permanently hollowed out towns across the American Midwest.

According to the CER report, “China Shock 1.0” led not only to the loss of up to 2.5 million jobs but also to increased rates of suicide, divorce, and drug use in U.S. communities that lost industries to China.

That erosion of the U.S. social fabric, the report said, was “an eerie warning shot for Germany’s car and machine-building cities like Wolfsburg and Stuttgart” — the headquarters of Volkswagen and Mercedes-Benz, symbols of German engineering and design excellence.

“Germany remains hesitant, even as China has already eaten much of German industry’s lunch and is preparing to start on dinner,” the CER said.

The thinktank report, titled “China Shock 2.0: the cost of Germany’s complacency,” concluded: “Berlin cannot keep admiring the problem.” It added that the risk for Berlin was acute, yet German political leaders had “struggled to see the problem clearly.”

The warning comes amid a growing consensus that China’s export boom, driven by President Xi Jinping’s focused five-year policy cycles, has triggered a second China shock threatening industry and jobs worldwide.

However, the CER said the shock was more consequential for Germany than any other EU country and was “worsening.”

The report pointed out that Beijing is running a policy project called “10,000 little giants” that specifically targets Germany’s Mittelstand — the country’s ecosystem of mid-sized, innovative industrial suppliers and firms. Germany, it said, has been “frantically searching for culprits” for its economic difficulties, with high energy prices and bureaucracy dominating political conversation instead of China’s role.

Germany’s failure to diagnose the situation, the CER said, resembled the “phantom pain” of an amputee. “That missing limb is export demand, chopped off by China’s profound pressure on China’s industrial base.”

The root of the problem, the report said, is ballooning Chinese exports worldwide while imports into China decline. The country reported a record $1.2 trillion trade surplus in 2025.

The CER attributed the economic imbalance to three factors: dampened domestic demand in China, an extremely unfavorable exchange rate that may undervalue the yuan by 40% against the euro, and a Beijing policy that ruthlessly targets Germany’s core industrial base.

Political leaders needed to wake up, the thinktank said: “Waiting for the shock to correct itself is not prudence, but a decision to let deindustrialisation run its course.”

It said the best option for Berlin was to go on the offensive “and support Paris in pushing the IMF and G7 to confront China’s currency undervaluation and one-sided trade model.”

Industrial leaders in Europe and China have told the Guardian of their fears that European industry is being cannibalised, and one leading German industrialist said Europe might as well become “a province of China” given the endemic damage.