Berlin and Brussels feel the pinch from Beijing

Discussions are heating up within Germany and the EU regarding future economic relations with China.

The background to this issue is the offer from a new Trump administration to apply more favorable tariffs on exports to the US for countries that reduce economic cooperation with China.

Washington is attempting to win over German automobile companies with special cooperation in the development of autonomous driving technology. The US goal is to push Chinese automobile companies out of the European market.

However, German automobile manufacturers have already begun close cooperation with Chinese companies. For example, BMW announced last week that it would develop its new models not only with Chinese tech giants like Huawei and Alibaba but also with the support of the artificial intelligence startup DeepSeek.

Around thirty German companies have written a letter to the prospective CDU-SPD federal government stating that they are becoming increasingly dependent on Chinese companies, which are becoming more and more “innovation leaders,” and therefore want closer cooperation with China.

US forces ‘friends’ to choose

Discussions about future economic relations with China have begun because the Trump administration has clearly stated its intention to make better offers regarding US tariffs for countries that reduce their business with China.

The US government has not yet officially announced this, but President Donald Trump recently told Fox News Spanish that Latin American countries should decide for themselves whether to establish investment relations with the US or China, adding, “They should do that.”

China strongly opposes this demand and emphasizes that it will react decisively if one or more countries accept this demand against its interests.

A statement from the Chinese Ministry of Commerce early last week said that Beijing “will strongly oppose any party that makes an agreement that harms China’s interests” and will take countermeasures if necessary.

No unity on China within the EU

There are contradictory stances among EU members. For example, Spain is determined to develop its economic relations with China; to this end, Prime Minister Pedro Sánchez met with Chinese President Xi Jinping in Beijing on April 11.

Italy, whose most important trading partner after Germany is the US, insists on closer cooperation with the US. Prime Minister Giorgia Meloni visited Trump in Washington earlier this month and then hosted US Vice President JD Vance in Rome.

The EU, at least on paper, is trying to show its “independence.” A European Commission spokesperson argued last Tuesday that negotiations were ongoing to discuss bilateral trade relations with Washington, but that the shaping of relations with China could in no way be dictated.

Claiming that these were two different issues that should be kept separate, the spokesperson said that the goal of “derisking” in relations with the People’s Republic of China would continue, but that complete “decoupling” was not targeted.

The Commission spokesperson added that there were no red lines in the negotiations other than the “security and prosperity” of EU citizens.

Stabilizing relations with China

Independently of this, Brussels has initiated practical efforts to carefully stabilize relations with China.

Just days after the US announced its latest tariffs, Commission President Ursula von der Leyen, who had previously taken a pro-US and often explicitly anti-China stance, said in a phone call with Chinese Premier Li Qiang that the EU and China, the world’s two largest markets, should continue their efforts towards a trade system based on “free, fair, and equal conditions” against US tariffs.

Leyen added that the two economic giants should make greater efforts for a fair trade system.

A spokesperson for European Council President António Costa soon announced that an EU-China summit would likely take place in Beijing in the second half of July.

China, for its part, announced plans to lift sanctions imposed on five Members of the European Parliament (MEPs) in March 2021. Those affected by the sanctions include former Green MEP Reinhard Bütikofer and CDU MEP Michael Gahler.

It is stated that with this step, China expects concessions from the EU, particularly regarding Chinese companies’ investments in Europe; however, the EU refuses to return to previous negotiations for a comprehensive investment agreement.

CDU-SPD government in Berlin will ‘derisk’

In Germany, too, discussions are intensifying regarding the path to be followed concerning China.

The new coalition agreement between the CDU/CSU and SPD states that relations with the US maintain “extraordinary importance,” while also arguing that in terms of trade policy, the “transatlantic economic area” offers the best conditions for success in global competition.

Regarding US tariffs, the future government coalition states that it wants to “prevent trade conflict” and that a “free trade agreement” should be signed with the US in the medium term.

Regarding relations with the People’s Republic of China, the coalition agreement states that the next federal government will revise the current China strategy according to the principle of “risk reduction.” Accordingly, economic cooperation with China will be further reduced.

US offers German industry a ‘deal you can’t refuse’

On the other hand, according to reports in the German media, the Trump administration is offering German industry cooperation with US companies in the development of autonomous driving.

It is stated that the US wants to increase the competitiveness of its own technology companies like Google and Nvidia in the global market for autonomous driving.

The goal is to capture China’s market share in cooperation with German automobile manufacturers.

However, it is doubtful whether the plan will work. BMW announced last week that it intends to use the artificial intelligence programs of the Chinese company DeepSeek for several new models to be launched in China this year.

It stated that cooperation with Huawei and Alibaba had been expanded in recent weeks to optimize the hardware of the new vehicles. Volkswagen also reported taking similar steps.

German companies’ letter to government: Cooperation is inevitable

In the letter sent to the future federal government by dozens of German companies, including large companies as well as medium-sized ones, it is emphasized that Chinese companies are increasingly becoming “innovation leaders,” and it is pointed out that close cooperation with them is crucial for competing in innovations.

According to the letter obtained by faz, the “risk reduction” policy, which continues unchanged in Berlin, constitutes an obstacle to such cooperation and therefore harms German industry.

Calling for the People’s Republic of China to be seen as a “partner” rather than a “competitor,” the companies also call for more “China expertise,” warning that the “distorted” image of China prevalent in Germany constitutes “an obstacle for German companies.”

One-third of these companies’ turnover and an even larger portion of their profits come from China. Therefore, if they were forced to abandon their business in China, they would face a problem that is almost impossible to solve.

For example, Oliver Oehms, President of the German Chamber of Commerce in Beijing, criticizes the coalition agreement. In the opinion of the Chamber’s members, the Chinese market is vital for the global competitiveness of German companies.

Oehms demands, “Therefore, we should receive more support from the new federal government, which combines ‘risk reduction’ with a goal-oriented China policy.”

Indeed, Jürgen Matthes, head of the international economic policy department at the German Economic Institute in Cologne, points out that when it comes to “risk reduction,” not much has changed for German companies.