A dispute is brewing within the federal government regarding the appropriate way to handle trade relations with China. In a joint document, the ministries led by the Social Democrats are advocating for a much tougher policy stance towards the Asian nation. The report states that China’s economic policy “relies on a network of state subsidies, administratively controlled overcapacity, and economic coercion.” The document, which drew attention from the newspaper Die Zeit, adds that these practices grant Chinese companies structural competitive advantages that could not be achieved using purely market-based means, and that German policy must “more robustly counter these distortions.”
This paper forms the basis of the Social Democratic ministries’ position ahead of the coalition committee meeting scheduled for Wednesday, which is set to discuss the government’s strategy concerning China. However, the economy ministry, led by the Union, remains skeptical about adopting trade protection measures, viewing them as potentially protectionist and risking retaliation from China.
Crucially, the Social Democrats call for the European Commission to initiate an anti-subsidy investigation into Chinese automotive conglomerates. This concern specifically targets plug-in hybrids-cars combining an electric drivetrain with a traditional internal combustion engine. The SPD paper emphasizes that this vehicle category is “critical” for German manufacturers. Furthermore, restricting Chinese exports is anticipated to generate “stabilizing employment effects” among German suppliers. An anti-subsidy procedure allows the Commission to determine if foreign manufacturers benefit from unfair advantages due to state support; if so, countervailing duties can be imposed. Currently, such special tariffs only apply to the import of purely electric vehicles from China.
The document also calls for public funding programs, such as those for electric vehicles, to be designed in a way that benefits domestic producers more heavily. Although this has not yet been achieved, the Commission has introduced a legislative draft allowing public subsidies to be tied to internal European value creation. According to the SPD ministries, the federal government should lobby hard during the negotiations for the so-called Industrial Accelerator Act to maximize the effectiveness of these regulations in “depth and scope,” ensuring that demand-focused programs do not inadvertently create additional demand for Chinese vehicles.
Additionally, the Social Democrats are urging stricter enforcement of social and environmental minimum standards. They note that China keeps its export prices low through low environmental standards and poor labor standards, even violating fundamental labor rights, such as forced labor. Therefore, they advocate for the existing ban on products made with forced labor to be strictly and effectively implemented, particularly concerning China.
The ministries led by the Social Democrats are the Finance, Defense, Labor, Development, Justice, and Building (Construction) departments.
