Tariffs, fear and propaganda: Why our false image of China is massively damaging the German economy
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Prefer Xpert.Digital on GoogleⓘPublished on: April 23, 2026 / Updated on: April 23, 2026 – Author: Konrad Wolfenstein
Tariffs, fear, and propaganda: Why our false image of China is massively damaging the German economy – Image: Xpert.Digital
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Public discourse about China typically oscillates between two extremes: demonization or blind admiration. But this black-and-white thinking obscures a far more complex economic and geopolitical reality. While Germany rested on the laurels of its traditional core industries for decades, the People's Republic used the principle of technological leapfrogging to assume global leadership in electromobility and digital infrastructure. At the same time, the US is investing billions in artificial intelligence but is struggling with a crumbling physical infrastructure. This essay takes a sober, data-driven look at the West's strategic errors, China's own profound structural crises, and the question of who actually benefits from the deliberately cultivated image of threat. A stark assessment that shows: In a multipolar world, neither fear nor euphoria helps – only strategic pragmatism and technological competitiveness.
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Not a monster, not a messiah – just a player with its own rules. Why black-and-white thinking about China is costing us more than China itself.
Who actually benefits from the image we have of China?
The question “Cui bono?” – who benefits? – is perhaps the most important of all economic policy questions. It is systematically omitted from public discourse about China. Instead, narratives that signal either threat or submission dominate: China as a technological aggressor stealing Western patents; or China as an enlightened partner who can be trusted unconditionally. Both extremes distort reality, and both benefit certain interest groups. Arms lobbyists profit from the threat narrative, while economic influence is obscured by the partnership narrative. The sobering truth, as so often, lies somewhere in the middle – and this middle ground can be described with data.
China is not a democracy, not a free market, and not a loyal ally of Western values. This is true and must be said. Equally true, however, is that China is the world's second-largest economy, Germany's most important trading partner, and by far the leading producer of electric vehicles and renewable energy technologies. Anyone who ignores this simultaneity—whether out of ideological aversion or economic opportunism—deprives themselves of the ability to act strategically.
Cui bono? The business of exploiting threat images
The geopolitical portrayal of China as an all-consuming monster is gaining traction – and it has its beneficiaries. In the American context, anti-China narratives primarily serve to justify protectionist trade policies, boost defense budgets, and mobilize domestic support. The Trump administration followed this pattern in both terms: punitive tariffs against China were used less as precise trade policy instruments and more as a broad political signal designed to appeal to a range of voters.
In Europe, the game plays out differently, but no less self-servingly. The automotive industry, once a bridge to Beijing, shifted its focus when Chinese brands began encroaching on its territory. Institutional investors, who profit from tariffs on Chinese electric cars, fund think tanks that publish corresponding analyses. The Bundesbank objectively notes that geopolitical risks associated with China are leading to a fragmentation of global trade – but this fragmentation itself has winners and losers, and both are located in the West.
This doesn't mean that all criticism of China is corrupt or false. The People's Republic does indeed engage in massive state subsidies that distort global market prices. The Chinese Communist Party systematically uses propaganda to maintain power, and this propaganda is effective—both domestically and internationally. But these observations are selective if they aren't placed in the context that Western governments also subsidize industries, influence media, and manipulate geopolitically. No one is innocent in this game—and recognizing this isn't downplaying the issue, but rather a prerequisite for clear thinking.
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Historical perspective: No power holds the top forever
World history knows no lasting world power. It knows hegemonies that rise, reach their zenith, and then decline in relative importance—not because they fail, but because others catch up. This pattern has repeated itself so regularly that it now has a name: "leapfrogging," the technological leap.
The classic example is the railway. While Great Britain drove the Industrial Revolution with rail transport, large parts of Europe slumbered – including the small German states. But precisely because Germany had no outdated infrastructure to modernize, it was able to rely on newer technologies from the outset when building its network and ultimately gained the industrial initiative at the end of the 19th century. The same pattern repeated itself in the automotive sector: When Carl Benz registered his patent for the first motor car in 1886, development had indeed started in Germany – but it was France that popularized the automobile, while Germany initially hesitated. Only decades later did Germany become the world's leading automotive nation, with brands like Mercedes-Benz, BMW, and Audi that continue to set global benchmarks.
Now this cycle is repeating itself – this time with China as the protagonist and electromobility as the stage. China has skipped entire stages of development: there was no mass-market combustion engine vehicle to defend, no established dealer networks to protect, no institutional inertia that could have hindered a new technology. The government recognized electromobility early on as a strategic opportunity and, with the "Made in China 2025" program, established a comprehensive industrial policy framework that – directly inspired by the German "Industry 4.0" concept – outlines the technological ascent in three stages by 2050.
The result is impressive: In 2025, over 16 million so-called New Energy Vehicles (NEVs) were produced and sold in China – a growth of 28 to 29 percent compared to the previous year. The electric vehicle market share exceeded 50 percent. China has led this segment worldwide for eleven years. This is not a passing trend, but a structural transformation that has already taken place.
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Germany: Decades of sleep on its technological backlog
Over the past two to three decades, Germany has reaped the rewards of its industrial heritage without investing sufficiently in the next generation of technology. The automotive sector, mechanical engineering, and chemicals—these core industries generated prosperity that long masked the lack of structural renewal. The energy transition was politically mandated but implemented half-heartedly from an economic perspective. Digitalization became a buzzword, but the necessary infrastructure failed to keep pace.
The figures are sobering: German exports to China fell by 7.6 percent in 2024 – following a decline of 8.8 percent the previous year, representing a drop of almost 16 percent over two years. The losses continued into 2025: German exports to China fell by 9.7 percent over the course of the year, while Chinese imports to Germany simultaneously increased by more than 8 percent. China remains Germany's most important trading partner, with a foreign trade turnover of €251.8 billion in 2025 – but the balance has fundamentally shifted. Previously, China primarily bought German cars and machinery. Today, it buys less from Germany because it produces many of these goods itself – and competitively.
The decline is particularly painful in the automotive sector, traditionally Germany's strongest export product. Chinese manufacturers like BYD, Geely, and SAIC are occupying market segments that were previously reserved for German premium brands. Chinese automotive companies are also transforming themselves from traditional vehicle manufacturers into AI and robotics firms: BYD, Li Auto, and Xpeng are not only integrating artificial intelligence into their vehicles but are also positioning themselves as technology companies that view the automobile as a platform. This is the real leap in quality – and no European manufacturer has yet been able to compete on equal terms.
This loss is real. However, it is not the result of Chinese aggression, but rather the consequence of decades of delayed structural change in Germany. Those who blame their competitors for their own inaction are trapped in a loser's mentality.
The structural problem in the Middle Kingdom: When success builds its own trap
China is currently the most discussed country in economic and geopolitical circles – mostly as an unstoppable force. But a sober look at the available data reveals a far more complex picture: China is at a structural turning point where the existing growth model is reaching its limits.
The core problem is the chronic weakness of domestic demand. Private consumption in China accounts for only around 40 percent of gross domestic product – a figure far below the global average. By comparison, this share is over 70 percent in the US and around 50 percent in Germany. For decades, China relied on exports, state infrastructure investment, and an overheated real estate sector – all three pillars are now showing cracks.
In the fourth quarter of 2025, the Chinese economy grew by only 4.5 percent year-on-year – the slowest growth in three years. Retail sales increased by a mere 0.9 percent in December 2025 – the weakest growth since the strict COVID-19 restrictions. Investment in real estate fell by 17.2 percent. Youth unemployment remained above 16 percent. Independent economists at the Rhodium Group even suggest that China's actual economic growth in 2024 was between 2.4 and 2.8 percent – far below the officially reported 5 percent.
China's projected trade surplus of $1.2 trillion in 2025 is impressive at first glance. However, it is more a symptom of weakness than a sign of strength: companies are flooding global markets with excess capacity because domestic demand is lacking. Exports are acting as a safety valve for structural dysfunctions – and in doing so, are simultaneously exporting deflation to global markets.
Added to this is the demographic problem. China is aging faster than it is growing wealthy. The population is shrinking, the working-age population is declining, and the social security systems are structurally inadequate for an aging society. These are not speculations, but demographic facts that will have economic repercussions over the next two decades. The development plateau that every rising economy eventually reaches is not an abstract vision of the future for China—it is already becoming apparent.
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America: Technologically ahead, structurally lagging
The United States is clearly leading the global race for artificial intelligence. With over 7,000 AI companies, the vast majority of which are startups, a dense venture capital ecosystem, and the technologically leading hyperscalers Amazon, Microsoft, and Google, America is investing on a scale unmatched by any other nation. The hyperscalers alone are projected to have invested over $300 billion in data centers, chips, and infrastructure by 2025.
But this claim to technological leadership has a blind spot. America's physical, material infrastructure—bridges, roads, water supplies, power grids—is in a state of structural decay that stands in stark contrast to its digital ambitions. As recently as 2021, the American Society of Civil Engineers rated US infrastructure as C- and estimated the investment needed by 2030 at $2.6 trillion. Insufficient investment could cause a GDP loss of up to $10 trillion by 2039. The collapse of the Francis Scott Key Bridge in Baltimore in 2024 was no accident—it was the result of decades of neglected repairs.
The structural contradiction is evident: America is developing the world's most intelligent systems on foundations dating back to the 20th century. While AI investments are at record highs, they represent only about one percent of GDP – far less than previous technological revolutions like the railroads or the automobile at their peak. And even these investments are encountering physical limitations: there is a shortage of electricians and skilled workers to build and wire the data centers – a problem further exacerbated by Trump's deportation campaign.
Furthermore, an MIT study from 2025 reached the sobering conclusion that 95 percent of all AI projects in US companies do not generate any measurable economic return. The US's AI dominance is real – but its benefit to overall economic productivity has not yet been proven. The question of how digital excellence can be translated into broad societal prosperity remains open.
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Multipolar world order: End black-and-white thinking in the China strategy
Geopolitics without innocence: The world is playing hardball
It would be naive to downplay China's strategic actions. The People's Republic is deliberately using its dominance in critical raw materials as a geopolitical tool. China controls around 60 percent of the world's rare earth mining and over 90 percent of its processing into permanent magnets – components essential for electric vehicle drives, wind turbines, and military systems. In October 2025, China massively expanded its export control regulations: A new "0.1 percent rule" allows Beijing to approve or block the re-export of products to third countries if they contain Chinese rare earths worth more than 0.1 percent of the total product.
This is a foreign policy weapon of considerable scope – and China is using it deliberately. This is geopolitically legitimate, just as American export controls on semiconductors against China are geopolitically legitimate. The only difference lies in how reflexively China's actions are framed in the West as aggression, while America's identical logic is framed as self-defense.
Likewise, the propaganda of the Chinese Communist Party is a real phenomenon: Under Xi Jinping, the influence of state media and targeted disinformation campaigns has been systematically expanded – both nationally and internationally. The goal is clear: to correct China's image abroad and undermine Western dominance in perception. This includes not only Twitter coordination campaigns but also more subtle forms of opinion manipulation in business forums and academic networks. Anyone who ignores this is naive. Anyone who concludes that any critical analysis of China is wrong is acting in the interests of those who profit from a blanket rejection of China.
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The Leapfrog Moment: What History Really Teaches
The concept of leapfrogging describes not just a technological effect, but a historical law of competitive dynamics. Countries and economies that are late to a new technological paradigm are not automatically at a disadvantage. If they plan correctly, they can skip outdated infrastructures and established path dependencies and move directly to the most modern technology available.
China has masterfully applied this principle. It did not fight its way into the internal combustion engine market, where Western and Japanese companies had built up advantages over decades. Instead, it focused on electromobility – a technology where no single supplier had a structural advantage – and, through a concerted combination of government subsidies, domestic market standards, and strategic support, established a new industrial leadership position.
The same applies to the digital sector: While Europe is still debating who should expand the mobile network after the fixed-line network, China has gone straight to 5G in large parts of the country – without modernizing an existing 4G network, but simply by skipping it altogether. The result is a level of technological maturity in digital infrastructure that often makes Western comparisons look poor.
Leapfrogging, however, also has a downside: those who jump too far too soon risk outpacing their own infrastructure. China's electric car boom has produced a dark side in the form of massive overcapacity in production. Domestic demand cannot absorb the supply – leading to price wars, shrinking margins, and the export of deflation to global markets. In this case, too, leapfrogging is not a panacea, but a tool with side effects.
China as a raw materials hegemon: Strength through strategic patience
China's dominance in rare earths is neither accidental nor a stroke of luck. It is the result of a decades-long state strategy that has consolidated mining, processing, and global market presence under state control. The Bayan Obo mine in Inner Mongolia is the epicenter of this industry – and the 2021 merger of the six largest state-owned enterprises to form the China Rare Earth Group has further tightened control.
Of the 34 critical raw materials defined by the EU, China ranks among the top three producers worldwide for 27. This dominance is not merely a statistic – it represents a structural dependency that affects Europe's energy transition, semiconductor industry, and defense technology. China's export controls on rare earth elements should be understood less as an escalation and more as the application of a geopolitical lever that has been cultivated over decades and is now being consistently deployed – in the context of the trade conflict with the US.
The European and German response to this – diversifying supply chains, building up domestic production capacities, and forging diplomatic partnerships with resource-rich countries – is necessary but protracted. In the meantime, this strategic dependency remains a real vulnerability.
Multipolar competition and the end of unipolarity
The discourse on China is often unconsciously shaped by a nostalgia for a unipolar world. In the 1990s, after the end of the Cold War, the Western liberal order—led by the USA—seemed universal and permanent. That era is over. The world has become multipolar: China, the USA, India, the European Union, Russia, the Global South—all these are centers of gravity with their own interests, rules, and narratives.
In this multipolar world, it is analytically unsound to portray one actor as a monster and another as a stabilizing force. China is attempting to assert its interests through trade policy, resource control, infrastructure investments in the Global South (Belt and Road Initiative), and a diplomatic offensive. America is doing the same—through sanctions, export controls, NATO alliance maintenance, and monetary hegemony. Germany and Europe are doing so with less consistency—but also with their own instruments, such as tariffs on Chinese electric cars or subsidy policies for domestic industries.
The difference between the actors is not that one acts morally and the other does not. The difference lies in the means employed and in the transparency. And it is precisely here that a sober analysis is the prerequisite for sound decisions – both in economic policy and geopolitics. Those who allow themselves to be guided by media narratives without questioning the underlying economic interests cede the field to those who create these narratives.
The German-Chinese tandem: Cooperation instead of confrontation
Despite the complexity of the geopolitical situation, there is one economic truth that cannot be ignored: German precision and Chinese speed complement each other structurally – if one is willing to utilize the potential of this complementarity instead of rejecting it out of geopolitical reflexes.
German small and medium-sized enterprises (SMEs) – the “hidden champions” that dominate technological niche markets worldwide – find in China a market of almost 1.4 billion people, a complete production and supply chain, and a growing innovation ecosystem. Chinese SMEs, in turn, seek access to German quality, reliability, and engineering expertise. In cities like Taicang (Jiangsu), this partnership has been a reality for more than 30 years: Over 300 German companies have established themselves there, forging an industrial partnership that combines synergies between German production standards and Chinese scalability.
Despite geopolitical tensions, German industry as a whole is strengthening its strategic cooperation with Chinese partners, focusing on innovation rather than retreat. This is not naive hope, but an economically sound calculation: China was Germany's most important trading partner continuously from 2016 to 2023 – and has been again since 2025. A retreat from this economic reality would not be geopolitically courageous, but economically self-destructive.
The link between "Made in China 2025" and "Industry 4.0" has already been agreed upon at the highest level and is being implemented in concrete projects: learning factories, joint ventures, and technology transfer in both directions. There are legitimate interests to protect – intellectual property, strategic technologies, and data-sensitive areas. These must be safeguarded by sound legal frameworks. However, they must not become a blanket suspicion that poisons all cooperation.
Break down prejudices, build background knowledge
Why does China do what it does? This question is rarely asked in Western discourse – and even more rarely answered honestly. China's industrial policy is not aggression for its own sake, but the consistent attempt by a nation that, for centuries, was dependent on, exploited by, or marginalized by Western powers, to achieve technological and economic sovereignty. The strategy of technological independence – expressed in the "Made in China 2025" roadmap – is directly linked to the historical memory of economic blackmail.
This does not mean that every means is legitimate. Competition-distorting subsidies, inadequate protection of intellectual property rights, and a lack of market access for foreign competitors are real problems that are legitimate subjects of trade negotiations. But this criticism is only productive if it is not underpinned by the unconscious axiom that China must remain technologically backward so that Western industries can maintain their lead.
China will not be stopped by tariffs or propaganda. It will be challenged by competitiveness – by better products, cheaper production processes, faster innovation. This is uncomfortable because it means addressing one's own weakness instead of delegitimizing the strength of the other. But it is the only economically viable answer.
Strategic conclusions for Germany and Europe
The economic analysis paints a clear picture: Germany faces a threefold challenge. It must contend with a China that has caught up or even taken the lead in key technologies. It must contend with an America that is increasingly protectionist towards its trading partners. And it must overcome its own structural weakness in innovation, which has accumulated over the last few decades.
The right answer lies neither in the extremes. Neither in complete strategic decoupling from China—which would be economically illusory and self-destructive—nor in an uncritical dependence that ignores strategic vulnerabilities. The middle ground is challenging: treating China for what it is—an important economic partner with different values, different political structures, and its own geopolitical interests. Conducting business where it makes economic sense. Protecting strategic technology sectors where it is nationally necessary. And dismantling prejudices to make informed decisions—instead of being guided by self-serving narratives.
Germany has proven that it can awaken from its slumber and reclaim leading positions – the automotive history of the last 120 years demonstrates this. The question is whether the will and the speed for this are still there. Because unlike the railway revolution of the 19th century, cycles today move in years, not decades. Those who are asleep now will wake up in a different world.
China is not a monster. Germany is not a hopeless case. America is not an infallible hegemon. They are players in a global competition that demands economic competence and strategic pragmatism – not fear, not euphoria, and not guided thinking.
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