Shift in German China policy and the cost of inaction: German industry groups shift the China-policy debate toward the cost of inaction

Overview

The report assesses newly published China-policy papers from Germany's BDI and VDA. It finds a clear hardening in German corporate thinking about China-related economic and security dependencies, but expects the policy response to remain targeted and grounded in existing European trade-defence mechanisms.

Core views

Deutsche Bank sees a rapid shift in corporate Germany's assessment of trade relations with China. The two new policy papers from the BDI and VDA reinforce a more hawkish stance that the institution says has been developing over the prior year. The most significant change is in the BDI's framing: while it recognizes that de-risking can bring costs, including possible Chinese retaliation, it argues that inaction would be economically more expensive in the long run and irresponsible from a security-policy perspective. The debate is therefore moving from the near-term cost of reducing dependencies toward the cost of maintaining them. The report does not interpret this shift as support for sweeping new trade barriers. Both industry groups favour deploying existing trade-defence instruments, including anti-subsidy tariffs, once competitive distortions pass a relevant threshold, and caution against creating new instruments. The VDA stresses that Europe should first address its own economic-policy shortcomings before discussing such interventions. Similarly, the BDI prefers WTO-compliant and temporary defensive measures, even as it argues that current tools can be too slow or insufficient in the face of what it describes as China's state-induced overcapacity in certain sectors and state-directed currency management. The papers are likely to influence Germany's forthcoming China strategy, which the report expects shortly before the EU Council meeting on 15–16 October. Deutsche Bank's central expectation remains a minimalist German and EU approach: policymakers will mainly use established trade-defence tools, potentially including measures directed at Chinese plug-in hybrids, while seeking to avoid a wider trade conflict. At the same time, the growing emphasis on the cost of inaction should speed efforts to identify and reduce strategic dependencies. The report points to Japan's longstanding policy of securing critical raw-material supplies as a potential model for German and European policymakers.

Analysis framework

The report compares the newly released China-policy positions of the BDI and VDA with the earlier German debate on de-risking. It evaluates their preferred trade instruments, stated limits on intervention, and potential implications for Germany's forthcoming China strategy and broader EU policy.

Methodology notes

• Competition & strategyValue chain analysis

  Assessment of strategic dependencies and critical raw-material supply security

  The report considers how reliance on China in strategically important inputs can create economic and security vulnerabilities, and discusses policy measures intended to reduce those dependencies.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Trade-policy effects linked to Chinese overcapacity, competitive distortions and critical-material supply chains

  The report connects Chinese industrial conditions and trade distortions with possible European defensive measures and efforts to secure upstream raw-material supplies.

Key data

• Report date25 September 2026Publication date
• Expected EU Council meeting15–16 OctoberThe report expects Germany's forthcoming China strategy shortly before this meeting

Impact & implications

The report says the policy debate is becoming more focused on the strategic and long-run cost of maintaining dependencies on China. Its base case remains targeted use of existing trade-defence measures rather than broad protectionism, alongside faster efforts to diversify and secure critical inputs.

Risks

• The BDI acknowledges that de-risking could impose costs, including possible Chinese retaliation.
• The report notes that existing trade-defence instruments may arrive too late or prove inadequate against large-scale overcapacity and state-directed currency management.

What to watch

• Germany's forthcoming China strategy ahead of the EU Council meeting on 15–16 October.
• Whether policymakers deploy existing trade-defence tools, including potential measures targeting Chinese plug-in hybrids.
• Progress in identifying and reducing strategic dependencies, particularly in critical raw-material supplies.