Germany between the USA and China: New strategies and trading system for a changed global order
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Published on: September 16, 2025 / Updated on: September 16, 2025 – Author: Konrad Wolfenstein
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No more free riders: Why Germany must now learn to stand on its own two feet
In a dilemma: Why Germany is now being crushed between the USA and China
Germany's economic model, long a guarantor of global success and national prosperity, is facing its greatest test. The Federal Republic is being squeezed like a pair of pincers by its two most important trading partners: the United States, with its protectionist "America First" doctrine, and an increasingly strategically aggressive China. The old certainties of free world trade and reliable alliances are crumbling, and Germany urgently needs to redefine its place in this changed global order to avoid becoming a plaything of the major powers.
On the one hand, there is the transatlantic partnership, which is becoming fragile under Donald Trump's tariff threats against the EU and automotive industries, forcing Germany to shed its long-held image of a "free rider." On the other, there is growing systemic rivalry with China, which is increasingly using its economic dominance—especially in critical raw materials and technologies—as a means of political pressure. Dependence on Beijing has reached strategically dangerous levels, while the institutions that once ensured fair competition, such as the World Trade Organization (WTO), are blocked and dysfunctional.
This article analyzes the profound shifts in the global power structure and sheds light on the strategic responses that Germany and Europe must now develop. From diversifying supply chains and new trade agreements with partners such as Canada and South America to establishing "open strategic autonomy" – nothing less than the future viability of Germany as a business location is at stake. What concrete steps are necessary to reduce critical dependencies, strengthen one's own negotiating position, and find a new balance between cooperation and differentiation?
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Why is Germany's relationship with the US and China changing fundamentally?
The international landscape is currently changing at a speed and depth that is having a lasting impact on Germany's relationship with the world's two most important economic powers. The United States is reassessing its interests and, under Donald Trump, is pursuing a protectionist trade policy that poses new challenges for Europe, and Germany in particular. At the same time, the systemic rivalry with China is intensifying, while both countries remain important trading partners for Germany.
This reordering is not temporary, but structural. The United States is increasingly focusing on the Indo-Pacific and pursuing an "America First" doctrine that places reservations on traditional alliances. China, in turn, is deliberately using its economic power to pursue political goals and challenging the rules-based international order. Germany must readjust its foreign policy priorities in this changed environment.
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How is the transatlantic partnership changing?
Relations with the United States remain of fundamental importance for Germany, but are becoming less of a given. The United States is Germany's most important trading partner, with foreign trade turnover of €252.9 billion in 2024. German exports to the United States reached €161.4 billion, representing 9.9 percent of all German exports—the highest figure in over 20 years.
Nevertheless, Trump's tariff policy is bringing with it considerable burdens. The US president announced 10 percent tariffs on all imports, 20 percent specifically on EU goods, and 25 percent on European cars. These measures are hitting German export sectors hard, particularly the automotive, mechanical engineering, and chemical industries. The DAX lost 17 percent of its value within a few days of the announcement of these tariffs.
The new reality requires Germany to prove itself a capable and sovereign partner on equal terms. This means revising its military, trade, and energy strategies, as well as strengthening its own capabilities to shed the image of a free rider. Only in this way can Germany improve its negotiating position with Washington and prevent further alienation.
What challenges does the systemic rivalry with China bring with it?
China is Germany's largest single trading partner, but its dependence is reaching problematic levels. The German government defines China as a "partner, competitor, and systemic rival." This threefold characterization reflects the complexity of the relationship: While cooperation in areas such as climate policy remains necessary, systemic rivalry is steadily growing.
Germany's dependence on certain raw materials and technologies is particularly critical. China dominates in 27 of the 34 raw materials classified as critical by the EU. In rare earth elements such as neodymium magnets, 91.3 percent of German imports come from China. These magnets are essential for electric motors, wind turbines, and household appliances. This dependence extends to other areas as well: For laptops, the Chinese import share is around 80 percent, and for mobile phones, 68 percent.
China is increasingly using this dominance as a strategic lever. The export restrictions on critical raw materials in 2025 clearly demonstrated the vulnerability of German companies. Some firms have already had to curb their production. This development underscores that China is acting "in line with the interests of its one-party system" and, in doing so, "relativizing the foundations of the rules-based order."
Why has the World Trade Organization become dysfunctional?
The WTO is no longer adequately fulfilling its original role as the guardian of the multilateral trading system. Its rules date back to 1995 and are outdated—many modern trade issues such as e-commerce, sustainability, and small and medium-sized enterprises are not adequately addressed.
The blockade of the dispute settlement mechanism is particularly problematic. Since 2019, the United States has blocked the subsequent nomination of members to the WTO's Appellate Body. This severely damages a central pillar of the WTO—the organization can no longer effectively enforce violations of its own rules. The United States criticizes an overly broad interpretation of the Appellate Body's mandate and calls for comprehensive reforms.
Added to this are structural problems: With 166 members, it's difficult to reach consensus. The Doha Round of trade liberalization has stalled for years. Many countries are therefore turning to bilateral or regional free trade agreements, further weakening the multilateral system.
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How can Germany develop new trade policy rules and partnerships?
The answer lies in a dual approach: on the one hand, the creation of new multilateral structures, and on the other, the diversification of trade relations through strategic partnerships. EU Commission President Ursula von der Leyen suggested a "redesign" of the WTO, while German Chancellor Friedrich Merz spoke of a "new type of trade organization." One concrete approach is increased cooperation with the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), a trade alliance of twelve countries including Australia, Japan, Canada, and the United Kingdom. This "structured cooperation" could serve as a starting point for redesigning the WTO. Progress on new, fair trade rules would be significantly easier within the CPTPP than within the stalled WTO.
At the same time, Germany and the EU are expanding their network of bilateral trade agreements. The ratification of four EU trade agreements with African countries will create new export markets and reduce dependence. The EU-Mercosur agreement with South America will create one of the largest free trade areas in the world and generate over 440,000 new jobs in Europe.
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How can Germany build strategic sovereignty in raw materials and supply chains?
Diversification of raw material sources has become a national security issue. Germany has already taken concrete steps: The new raw materials partnership with Canada aims to reduce dependence on China for critical materials. Canada has abundant reserves of lithium, cobalt, graphite, and other raw materials essential for modern technologies.
The EU's "open strategic autonomy" strategy aims to be as open as possible and as autonomous as necessary. Concrete measures include diversifying import sources, expanding domestic capacities in strategic areas, and promoting sustainable supply chains. By 2030, the EU aims to extract at least 10 percent of its strategic raw materials domestically, process 40 percent, and recycle the rest.
German companies are already actively practicing de-risking in China. According to a survey by the German Chamber of Commerce and Industry (AHK) Greater China, many German companies operating in China are planning to establish additional locations outside of China or establish China-independent supply chains. One in five German companies in China intends to reduce their investments there.
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What role does Europe play in the restructuring of trade relations?
Europe must act as a unit to survive in the new geopolitical reality. The EU already enjoys considerable strategic autonomy in trade and has the world's largest network of trade agreements. As one of the largest players in global trade, the EU can make decisions quickly and exerts considerable influence.
The new EU trade strategy is based on the concept of "open strategic autonomy": maintaining traditional openness and international engagement, while at the same time being prepared to enforce its rights and protect its citizens and companies from unfair trade practices. This includes tightened investment controls, anti-coercion regulations, and consistently applied subsidy controls.
European unity vis-à-vis China is particularly important. The EU has already developed instruments to strengthen its position: a screening mechanism for foreign investments, enhanced trade instruments, and an effective toolbox for critical technologies such as 5G. An improved procedure for screening subsidized investments complements this arsenal.
How can Germany and Europe strengthen their negotiating position?
Europe's strength lies in its collective market power. With a share of around 15 percent of global gross domestic product, the EU can exert considerable influence in negotiations. This power is already evident in the current dispute with the US: The EU has prepared retaliatory tariffs amounting to €72 billion in response to Trump's tariff threats.
Germany must strengthen its own competitiveness to emerge as a credible partner. This requires investments in key technologies, the expansion of the circular economy, and the creation of suitable framework conditions for innovation. Policymakers should support companies in diversification through low-threshold funding programs and research funding.
The transatlantic partnership remains essential despite all the challenges. Germany and the United States have far more in common than they divide. Common interests exist, especially in security and trade policy. The goal must be to ensure that China does not emerge as the winner at the end of the trade conflict.
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What balance between cooperation and demarcation is necessary?
Germany's new foreign trade strategy must balance various demands. With China, this means "de-risking" rather than "de-coupling" – a targeted reduction of critical dependencies without complete decoupling. Systemic rivalry does not preclude cooperation, but rather requires it in certain areas such as climate policy or global crises.
The challenge lies in combining economic efficiency with strategic security. Not all trade relationships are equally critical—dependence in consumer electronics is less problematic than in raw materials for key technologies. Germany must develop a differentiated strategy that distinguishes between different product categories and partners.
The new partnership with the United States requires greater responsibility and reciprocity. Europe must be willing to do more for its security while also confidently representing its economic interests. Paradoxically, this is the best prerequisite for a long-term, stable transatlantic partnership.
What does the future of German foreign trade policy look like?
Germany faces the task of fundamentally rethinking its foreign trade policy. The coming years will be crucial for whether it succeeds in building strategic autonomy without becoming disconnected from the global economy. The diversification of trade relations must be systematically pursued – through new partnerships with countries such as Canada, Australia, and Brazil, but also through deeper relations with Africa and Latin America.
The digital and green transformation offers opportunities for new forms of international cooperation. Germany can leverage its strengths in areas such as Industry 4.0, renewable energies, and environmental technologies to tap into new markets while building strategic partnerships. The circular economy opens up additional opportunities to reduce dependence on raw materials.
The success of this strategy depends on whether Germany and Europe can demonstrate the necessary political unity and the courage to make difficult decisions. This also includes the willingness to bear economic costs in order to achieve long-term strategic goals. Only in this way can Germany assert its position in a changing world order and successfully assert its values and interests.
The new reality requires a pragmatic realpolitik with clear principles—without moral hubris, but also without blind pragmatism. Germany must learn to navigate a world of great power rivalries in which economic interdependence is increasingly used as a strategic weapon. The capacity for strategic autonomy will become a decisive factor for the future viability of the German economic model.
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