The World This Week

CWA # 2002
The World This Week
German Chancellor’s China Visit
Reducing trade deficit and recalibrating economic cooperation with Beijing
The World This Week #346, 01 March 2026

Femy Francis
1 March 2026

Photo Source: South China Morning Post

What happened?
On 27 February, the three-day visit to China by German Chancellor Friedrich Merz concluded who arrived with a delegation of 30 German firms. He said: “Our message from a European point of view is the same: We want a balanced, reliable, regulated and fair partnership with China.” Merz also called for China to be part of mediating peace between Russia and Ukraine and said: “The big global political problems can no longer be tackled today without involving Beijing.” China is now set to buy 120 additional aircraft from European aircraft maker Airbus.

China’s President Xi Jinping, while meeting Merz, proposed three points: further developing German-China relations, for them to become innovative partners, and to encourage people-to-people exchanges. Xi said: “The more turbulent and complex the world becomes, the more China and Germany should strengthen strategic communication and enhance strategic mutual trust.” He also met Premier Li Qiang, who signed five documents on mitigating climate change, green transition, cooperation on animal disease prevention and sports collaboration.

What is the background?
First, China-Germany economic cooperation. China has overtaken Germany as its most important trading partner in 2025. There was a 2.1 per cent hike in trade estimated at USD 296.6 billion. China was the most important trading partner for Germany from 2016 to 2023, but in 2024, the US took the lead. But there is a large trade deficit for Germany, where they imported USD 179.13 billion from China, which is an 8.8 per cent increase from 2024. Germany exported USD 96 billion to China, which is a 9.7 per cent decrease from the year prior. This imbalance was a major point of discussion in Merz’s visits to China, as he sought greater cooperation and reorganisation in trade relations.

Second, Trump’s tariffs on Germany as a driver. The ousting of the US as Germany’s most important trading partner was largely due to tariffs imposed by the US President Donald Trump’s administration. There was a 5 per cent drop in trade, with foreign trade turnover of USD 165 billion. As he is scheduled to visit the US soon, Merz noted that he will represent the EU, as he firmly believes that tariffs benefit no one and hurt all. German exports to the United States have fallen lowest level in nearly four years, due to the impact of tariffs imposed by US President Donald Trump. A report by IW found that “German exports to the US fell by 7.8 per cent during this period,” this is across all sectors in 2025.  

What does it mean?
First, Germany is diversifying cooperation.  The Trump tariffs made not only Germany, but the EU collectively realise the volatility and unpredictability of the US as a partner under Trump. On the one hand, it seeks to mediate a deal and to curb the tariffs; it is also now open to diversifying and officially engaging with China as a preferred trading partner. China has always been an important trading partner for Germany, but the tariffs by the US have further pushed this economic collaboration. This has two purposes: First, to leverage trade with one of the world’s largest economies; Second, to showcase to the US that alternatives are present.

Second, cutting losses. This visit by Merz mainly focused on reducing the trade gap, as it aimed to further their economic cooperation. The visit aims to recalibrate economic ties and the imbalance of trade deficit that is between the two countries. Germany realises it needs to work closely with Beijing, regardless of the trade gap. And therefore, it is best to rework the deficit and reduce this gap.

Third, strengthening allyship in Europe. The visit by Merz is not only for economic progress but also a diplomatic visit. With the US, the EU has also been sceptical of China, and this particular visit paves the way for the EU countries to negotiate and formulate similar deals. China provides a stronger market, technological hub, testing ground for new products and access to the global supply chain. For China, Germany provides experience in technology and talent for advanced manufacturing; it is a sophisticated market for China to sell to. Concurrently, both countries stand to benefit by working together.

Femy Francis is a Project Associate at NIAS, Bengaluru.

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