The USA is becoming increasingly important for Germany as a trading partner, but China still remains in the top position. But that could change next year.
China maintained its position as Germany’s largest trading partner last year, just ahead of the USA. At 253.1 billion euros, the volume of imports and exports was only a good 0.7 billion euros higher than the trade in goods with the USA, which reached 252.3 billion. The Federal Statistical Office announced this today. The gap has therefore become significantly smaller, as last year the difference was 50.1 billion euros.
Third place is again occupied by the Netherlands with exports and imports worth a total of 214.8 billion euros, a decrease of 5.5 percent. The People’s Republic was Germany’s most important trading partner for the eighth year in a row.
However, the value of goods imported from China fell by 19.2 percent to 155.7 billion euros last year. At the same time, the value of goods exported there fell by 8.8 percent to 97.3 billion euros. This results in a trade deficit of 58.4 billion euros – the second largest with China since the data series began in 1950, after the record of 86.1 billion in 2022.
China’s dominant position is crumbling
“China’s dominant position in foreign trade with Germany is crumbling,” wrote the federally owned German foreign trade company Germany Trade and Invest (GTAI) in a recent study. The main reason is China’s weakening economy. “The real estate crisis, geopolitical risks in relation to the USA and weak industrial investments contribute to this,” it said. German companies also changed their strategy on the Chinese market. According to GTAI, they are trying to avoid using China in procurement, among other things.
“If last year’s trade developments continue, the USA will overtake China as Germany’s most important trading partner by 2025 at the latest,” said the head of foreign trade at the German Chamber of Commerce and Industry (DIHK), Volker Treier. “At the moment there are no signs of a significant increase in demand for products made in Germany from China.”
USA is the most important buyer country
As has been the case since 2015, most German exports went to the United States. Goods worth 157.9 billion euros were exported there, 1.1 percent more than in 2022. This was offset by US imports of 94.4 billion euros, also an increase of 1.1 percent. This means that German foreign trade with the USA achieved an export surplus of 63.5 billion euros.
In second place among the most important purchasing countries for goods “Made in Germany” was France (116.8 billion euros; minus 1.2 percent), followed by the Netherlands (111.5 billion euros; minus 0.7 percent).
Sign of the “turning point”?
According to the Institute for Macroeconomics and Economic Research (IMK), the development shows geoeconomic shifts as a result of the much-vaunted “turning point”. “Faced with a possible conflict over Taiwan and a confrontation between the USA and China, German companies are diversifying their supply chains and sourcing less from China,” said the scientific director of the IMK economic research institute, Sebastian Dullien.
“This is reflected in significantly falling imports from China.” The People’s Republic, in turn, is relying on increasing domestic production of strategic goods and is sourcing less from Germany.
German Direct investments in China at record levels
According to a study by the employer-related Institute of the German Economy (IW Cologne), German direct investments in China have risen to a record level despite calls for greater diversification.
They grew by more than four percent in 2023, adding up to 11.9 billion euros, as the IW Cologne calculated based on figures from the Bundesbank. “This is a new high – after already high values in the previous two years,” said IW expert Jürgen Matthes to the Reuters news agency. From 2021 to 2023 alone, German companies would have invested just as much in China as they did from 2015 to 2020.
What will happen to derisking?
China’s share of direct investment flows abroad did not decrease last year. The opposite is the case: the share of the People’s Republic, including Hong Kong, in all foreign direct investments in the German economy has risen to 10.3 percent. This is the first time since 2014 that it has exceeded the ten percent mark. This also has to do with the fact that German direct investments abroad fell from almost 170 billion to 116 billion euros, bucking the trend of growing investments in China.
The federal government is encouraging companies not to put everything on China’s cards, but rather to diversify investments more widely. This strategy is also called derisking. The background is the danger of a war on Taiwan, which could lead to sanctions against Beijing similar to those against Russia as a result of the Ukraine invasion and could disrupt supply chains.
Overall, according to the IW, there is a mixed picture. “On the one hand, there are the new investments in China as a whole, which in the overall view are financed solely from the profits generated there,” said Matthes, who heads the international economic policy, financial and real estate markets department at the IW. “On the other hand, there have obviously also been withdrawal movements from China in the last four years.”