While Washington raises tariffs, Berlin is hedging its bets.
According to exclusive data from the IW German Economic Institute, German corporate investment in China surged 55.5% to over €7 billion ($8B) in 2025—a four-year high. The data illustrates a swift strategic realignment: as the Trump administration’s trade policies make the US market more volatile (with German investment in the US nearly halving), Europe’s industrial powerhouse is doubling down on the East.
🛡️ STRATEGY: “IN CHINA, FOR CHINA” This isn’t just about export sales; it’s about geopolitical insulation.
- The Logic: German firms like Volkswagen, BASF, and Mercedes-Benz are localizing supply chains to ensure their China operations can function independently of Western sanctions or trade wars.
- The Quote: “If I’m only producing in China for China, I’m reducing my risk of being affected by possible tariffs,” notes Juergen Matthes (IW Institute).
🌍 THE NEW ALLIANCES: Germany isn’t alone in this shift.
- UK: Sending a delegation to Beijing this week to seal deals in autos and pharma.
- Canada & EU: Actively seeking expanded trade terms with China and South America to reduce reliance on the US dollar bloc.
- VW’s Pivot: The automaker confirmed that tech developed in China is now being exported to “neutral” markets like Southeast Asia, Africa, and South America, effectively bypassing the US tech ecosystem.
💡 ANALYST TAKEAWAY: The US aim to “de-couple” from China may be inadvertently isolating the US instead. By aggressively tariffing allies, Washington has forced German industry to treat China not just as a market, but as a self-contained “Safe Harbor” against US policy risk. When major manufacturers like ebm-papst invest 20% of their capex to “produce where the customers are,” they are effectively tariff-proofing their global balance sheets.
👇 Global Strategists: Is “Localization” the only effective hedge against trade wars, or does it dangerously increase exposure to Beijing’s regulatory whims?