A leading Brussels thinktank has warned that Germany must stop admiring China’s success within the EU, or it risks sleepwalking into the kind of deindustrialisation that hit the US 25 years ago.
China’s trade surplus with Germany doubled from $12bn (£9bn) to $25bn between 2024 and 2025, creating a total trade imbalance of $94bn. The Centre for European Reform (CER) said Europe’s largest economy could repeat what happened in the US in 2001, when a sudden surge in imports permanently hollowed out towns in the American midwest.
According to the CER report, “China Shock 1.0” not only led to the loss of up to 2.5 million jobs, but also caused a rise in suicides, divorces, and drug use in US towns that lost industries to China.
The CER said this breakdown of US society was “an eerie warning shot for Germany’s car and machine-building cities like Wolfsburg and Stuttgart” – home to Volkswagen and Mercedes-Benz, two brands that symbolise German engineering and design success.
“Germany remains hesitant, even as China has already eaten much of German industry’s lunch and is preparing to start on dinner,” the CER said.
The thinktank’s report, titled “China Shock 2.0: the cost of Germany’s complacency”, concluded: “Berlin cannot keep admiring the problem.” It added that the risk for Berlin was serious, yet German political leaders had “struggled to see the problem clearly”.
This comes as there is growing agreement that China’s export boom – driven by Xi Jinping’s focused five-year policy cycles – has triggered a second China shock, putting industries and jobs at risk worldwide.
However, the CER said that within the EU, the shock was hitting Germany harder than any other country and was getting worse.
Its report pointed out that Beijing is running a policy project called “10,000 little giants”, which specifically targets Germany’s Mittelstand – the country’s network of medium-sized, innovative industrial suppliers and firms. Germany was described as “frantically searching for culprits” for its economic troubles, with high energy prices and bureaucracy dominating political discussion, rather than China.
The CER said Germany’s failure to understand what was happening was like the “phantom pain” of an amputee. “That missing limb is export demand, cut off by China’s intense pressure on Germany’s industrial base,” it added.
The root of the problem was China’s rapidly growing exports worldwide, while its imports declined. The country reported a record $1.2tn surplus in 2025.
The CER blamed the economic imbalance on three issues: weak domestic demand in China; a very unfavourable exchange rate, which may undervalue the yuan by up to 30% against the euro; and a Beijing policy that aggressively targeted Germany’s core industrial base.
The thinktank said political leaders needed to wake up: “Waiting for the shock to correct itself is not prudence, but a decision to let deindustrialisation run its course.”
It said the best option for Berlin was to go on the offensive “and support Paris in pushing the IMF and G7 to confront China’s currency undervaluation and one-sided trade model”.
Industrial leaders in Europe and China have told the Guardian they fear European industry is being cannibalised. One leading German industrialist said Europe might as well become “a province of China”, given the widespread damage.
Frequently Asked Questions
Here is a list of FAQs about the concept of China Shock 20 and Germanys changing stance toward Beijing
BeginnerLevel Questions
1 What is China Shock 20
Its a term used to describe the current wave of economic and security challenges Germany faces from China Unlike the first China Shock which was about cheap goods flooding the market this one is about China competing in hightech industries like electric cars solar panels and green energy
2 Why is Germany being told to stop admiring Beijing
For years Germany relied on cheap Chinese goods and a huge export market Critics now say that admiration was naive They argue Germany ignored Chinas aggressive industrial policies and growing geopolitical rivalry which now threaten German jobs and key industries
3 What does wake up mean in this context
It means Germany should stop viewing China purely as a business partner and start treating it as a systemic rival This involves reducing economic dependency protecting critical technologies and aligning more closely with the US and EU on trade and security
4 Is this just about cars and factories
No It also involves national security For example Chinas dominance in rare earths 5G infrastructure and even port investments raises concerns about espionage supply chain control and strategic leverage
AdvancedLevel Questions
5 How is China Shock 20 different from the first China Shock
The first shock was about lowcost manufacturing hurting German textiles and basic goods The new shock targets Germanys core strengths automotive machinery and green tech China now produces cheaper often subsidized highquality electric vehicles and solar panels directly competing with German giants like Volkswagen and Siemens
6 What specific German industries are most at risk
Automotive Chinas BYD and NIO are taking market share in EVs
Solar Wind Chinese solar panels are 50 cheaper than Germanmade ones
Machinery Robotics China is catching up in industrial automation
Chemicals Chinas massive statebacked chemical parks undercut BASF
7 What does derisking mean for German companies
It means diversifying supply chains away
