Germany's Record €87 Billion Trade Deficit With China Sparks Protectionism Fears

Germany’s trade deficit with China is on track to hit a record €87 billion (US$102 billion) in 2025, a dramatic widening driven by shrinking demand for German goods and fierce competition in the electric vehicle sector. According to analysts, the growing imbalance is fueling concerns of a political and protectionist backlash in Berlin.

A forecast released last week by Germany Trade and Invest (GTAI), an economic development agency, projects that China's exports to Germany will rise by 7.2% this year to reach €168 billion. Meanwhile, Germany’s exports to China are expected to fall by 10% to just €81 billion. Holger Goerg of the Kiel Institute for the World Economy noted that reversing this trend will be difficult in the short term.

The Engine Stalls: Auto Industry Woes Deepen the Divide

At the heart of the issue is the eroding competitiveness of Germany's famed industrial base. The GTAI report forecasts that the country's vaunted automotive industry is set to see its global exports decline by 3.2% this year. It's a slump driven significantly by Chinese EV makers, who are aggressively challenging legacy German brands not only in their home market but across emerging Asia.

This trend is a key driver of the trade gap. A Deutsche Bank report from October stated that Germany’s auto exports to China fell by roughly 5% year-on-year during the first seven months of 2025, directly contributing to the widening deficit.

'In China, for China': A Strategy That Curbs Exports

Adding to the imbalance is a strategic shift by German industrial giants themselves. Companies like Volkswagen are increasingly localizing their production under an “in China, for China” mantra, a strategy encouraged by Beijing. This effectively substitutes goods once exported from Germany with products made locally in China.

As a result, German foreign direct investment in China is now driven less by new capital and more by the reinvested earnings of established players expanding their local operations, Goerg observed.