“Europe—and Germany in particular—is experiencing a ‘China Shock 2.0.’
Deindustrialization is no longer creeping along; it is galloping.
Machine manufacturers, chemical giants, and automakers are all groaning under the weight of Chinese competition, yet they are increasingly relying on China. Even the partially state-owned Volkswagen Group intends to supply the majority of the global market with cars developed and produced in China in the future.
It is understandable, then, that calls for tougher protective measures are growing louder. Chancellor Friedrich Merz (CDU), for instance, is seeking a new Plaza Accord. The original 1985 agreement led to a depreciation of the dollar and an appreciation of the Deutsche Mark and the Japanese yen. Merz aims to bring about an appreciation of the Chinese renminbi, thereby making Chinese exports—currently supercharged by currency weakness and subsidies—more expensive. Experts at think tanks and commentators in Berlin are urging an even more urgent decoupling from China.
They rightly fear that deindustrialization endangers political stability—much like the first ‘China Shock,’ which hit the US particularly hard after the People’s Republic joined the World Trade Organization in 2001 and is considered a key factor in Donald Trump’s political rise.
The initial mistake made by those calling for such measures is their failure to fully work through the likely consequences of an escalation. Beijing’s communist regime has made it clear that it intends neither to revalue its currency nor to reduce state aid to the economy. Chinese leader Xi Jinping even managed to tame US President Donald Trump. The reason for this hardline stance lies in precisely the factor Europe views as its trump card: China’s dependence on exports amidst its domestic economic crisis. Beijing is certainly capable of sending a signal to counter resistance against the attempts to curb the flood of exports to other regions of the world.
While Europe is an important sales market, according to China’s customs authority, it accounted for only about 15 percent of all exports from January to May of this year.
In contrast, a quarter more goods went to Southeast Asia than to the European Union. Brussels’ leverage is therefore weaker than it believes.
Moreover, Europe’s starting position for such a confrontation is far weaker than that of the United States: the EU is internally divided. Heads of government are struggling to protect their own industries, and the EU Commission will never be able to make far-reaching decisions as quickly as the US administration. The question, therefore, is not whether Europe can afford inaction, but whether it can afford to lose a trade war with China on top of everything else.
The second mistake lies in the lack of consensus regarding what this trade policy is actually intended to achieve. Security circles harbor significant reservations about Chinese investments in Europe, particularly in high-tech sectors. However, shielding the domestic market from Chinese competition fosters further industrial stagnation—a conclusion suggested by economic studies. Nor does this offer a solution for competing with China in third-party markets. Instead, the impression arises that many long for a return to former strength and demand tools that might have prevented this decline—yet these tools are ill-suited for a resurgence.
The bitter answer to deindustrialization is that there is no quick fix. Industrial competitiveness is built over decades. While many of the accusations leveled against China are valid—an artificially undervalued currency, excessive subsidies, violations of World Trade Organization rules, and an economy characterized by both export prowess and domestic economic crisis weighing on the entire world; perhaps even an industrial policy that deliberately weakens Europe. Yet Beijing’s policy works because the economic and technological fundamentals are on its side.
If Europe wants to catch up, it should refocus on these fundamentals: an education system geared toward technological excellence; a state capable of strategic action that rewards performance; a reliable, cost-effective energy and infrastructure system; and a population that is ready for action and open to new technology. Europe’s problems run deeper than the ‘China Shock 2.0’ suggests.” [1]
Cutting off Europe’s economy from global, mostly Chinese, competition with tariffs leads to even deeper deindustrialization and political instability, usage of horses and goats as basis of European economy again in good case, war and devastation, invasion of nations from Africa in bad case.
This outlines a clear path for European revitalization by focusing on internal structural fundamentals: education, state capacity, energy infrastructure, and technological readiness.
The Early Risks of Excessive Tariffs
Before a total collapse into a pre-industrial agrarian society or immediate foreign invasion, the primary economic risks of aggressive decoupling or high tariffs include:
• Accelerated Deindustrialization: High tariffs on critical inputs (like cheap Chinese batteries, solar components, or raw materials) raise costs for European manufacturers. This can make European exports uncompetitive globally, forcing domestic factories to downsize or close.
• Loss of Innovation: Shielding domestic industries from global competition often reduces the pressure to innovate, leaving European companies technologically stagnant compared to global rivals.
• Inflation & Reduced Living Standards: Consumer costs rise sharply when cheap imported goods are blocked, disproportionately affecting lower-income populations and fueling political instability.
Ultimately, most experts agree with the core sentiment reflected above: Tariffs alone cannot save Europe’s economy. While they might buy temporary time for domestic industries, they cannot replace the urgent need for structural reforms, reliable energy, and a workforce prepared for technological excellence.
1. Zölle retten Europas Industrie nicht. Frankfurter Allgemeine Zeitung; Frankfurt. 01 July 2026: 15. Von Gustav Theile, Shanghai
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