Breakingviews - Merz wavering cripples EU’s tough China stand

June 11, 20266:54 PM GMT+10Updated June 11, 2026

German Chancellor Friedrich Merz delivers a speech during a session of Germany's lower house of parliament, the Bundestag, in Berlin, Germany June 11, 2026. REUTERS/Nadja Wohlleben Purchase Licensing Rights , opens new tab

BERLIN, June 11 (Reuters Breakingviews) - Friedrich Merz has a good opportunity to show he’s serious about tackling his country’s economic decline. The German chancellor still hasn’t indicated whether he will support the European Commission’s plans ​to play hardball with China over its economic and trade policies. He should. As it happens Brussels is not only ‌defending the EU, but also Germany’s interests.

Europe's industries are being battered by booming Chinese exports. The European Union’s overall trade deficit

with China stood at €360 billion in 2025, up nearly 20% year-on-year. Germany’s own deficit surged even faster, rising 33% to nearly €90 billion. And this year’s first quarter data shows the trend is worsening.

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Still, China is ​not the only reason for Germany’s economic problems, where industrial production has declined since 2018. But it is shaking its long-standing ​export model to its core. Chinese factories now make and sell sophisticated equipment like robots and machine tools ⁠once manufactured in the Rhine and Ruhr industrial heartland and undercut its manufacturers on world markets with cheaper cars and machinery. Germany’s global ​exports only rose 1% last year — against China’s near 7%.

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Over the past year, EU leaders have tried in vain to get Beijing to change its ​ways. But they face an authoritarian regime that actively promotes exports through massive subsidies, a targeted industrial policy, and a managed currency that prevents any natural correction of China's current account surplus — which regularly tops 3% of its GDP.

The European Commission has proposed an Industrial Accelerator Act to force governments to source goods and services locally, ​and an overhaul

of its Cybersecurity Act that could prohibit Chinese groups like Huawei Technologies and ZTE (000063.SZ)

from supplying European networks. Beijing has warned ​of reprisals if either bill passes.

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Merz is wavering and his own coalition government is divided on the topic. The country’s powerful automobile industry fears a trade war, ‌especially since ⁠big carmakers like Volkswagen (VOWG.DE)

, Mercedes-Benz (MBGn.DE)

and BMW (BMWG.DE)

have become major Chinese manufacturers, and fear being hit from both sides — because they export cars to Europe, but could still be open to Chinese retaliation if a major trade conflict erupts.

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But large German industries including steel and pharmaceuticals, and even car-part makers, now favor a showdown. According to the Rhodium Group’s Senior Advisor Noah Barkin, the Federation of German Industries has even advocated

in a ​confidential memo a “much more forceful de-risking ​policy [from China] — even if this ⁠comes with substantial costs, including retaliatory measures”.

France wants the topic of China’s current account surplus to be discussed at next week’s summit of the Group of Seven (G7) industrialised nations, and the Commission wants to get a ​mandate from EU leaders at another summit a few days thereafter. Merz has less than a week to ​decide if he ⁠is willing to take serious action against China — or weaken Europe’s attempt at tackling the challenge.

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Editing by Aimee Donnellan; Production by Streisand Neto