Pessimistic Outlook: How the Trade War is Impacting German Companies in China
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Trade conflict bearing heavily on German firms operating in China - Impact of Customs Dispute on German Businesses Operating in China
German companies in China are expressing growing concerns about the future due to the ongoing trade dispute between Beijing and Washington. A survey by the German Chamber of Commerce (AHK) in China reveals that nearly six in ten member companies anticipate a worsening economic landscape over the next six months—a stark contrast to the 16 percent who held similar sentiments a year ago.
"It creates a negative ripple effect," said Oliver Oehms, managing board member of the AHK in North China, in reference to the tariffs. Member companies strongly agreed that the economy in China would likely deteriorate. "If not directly, our member companies will be affected by the deteriorating economic situation in China," Oehms elaborated.
State of the Trade War
Since the intensification of the trade dispute in early April, commerce between the US and China has stalled almost completely. Donald Trump imposed taxes of 145 percent on Chinese goods. China responded with a 125 percent tax on imports from the US. US Treasury Secretary Scott Bessent and Chinese Vice-Premier He Lifeng will meet in Switzerland this weekend to negotiate tariffs.
Preliminary data suggests that both countries have already started feeling the brunt of the trade war. In China, the purchasing managers' index has dipped, indicating gloomy business prospects for firms in manufacturing or services.
Implications for German Companies
According to the AHK survey conducted in mid-April, with participation from 143 member companies predominantly from the machinery and automotive sectors, tariffs, as well as other trade barriers like export restrictions, have the most substantial impact on companies.
This is reflected in business prospects. Only a slim majority expect increased sales by the year's end, and just 18 percent anticipate profits.
Strategies to Navigate the Challenges
38 percent of German companies in China are combating the adverse effects by accelerating localization. This trend has been prominent for some time, with firms aiming to boost their competitiveness in China or minimize the risk of non-compliance with Chinese regulations or dependence on international supply chains. About a quarter are contemplating alternative markets for procurement instead of the US.
Requests to Berlin
German companies are looking to Berlin for help as well. During the election campaign, Federal Chancellor Friedrich Merz (CDU) expressed a critical stance towards China. In the AHK survey, roughly two-thirds of companies urged the federal government to advocate more actively with China. The AHK hopes that the new federal government will view China as a partner, not just a systemic adversary, said Oehms.
Additionally, around half of the companies express the importance of improving Germany's image of China to support their business in China. Criticism of human rights abuses and unfavorable competition conditions for foreign companies in China has damaged the People's Republic's image in recent years.
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- AHK
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- Federal Government
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- Economic Situation
- Donald TrumpGerman companies operating in China are facing challenges due to the ongoing US-China trade conflict, but their operations are not directly affected due to their strategic focus on serving the local Chinese market. Here's how they are impacted and their expectations:
Impact of the Trade Conflict
- Indirect Effects: The trade tensions between the US and China have led to a decline in the economic outlook for German firms in China. However, the impact is more indirect, as these firms have limited exposure to direct trade with the US. They are affected by the broader economic effects of the tariffs on China’s economy[1][3].
- Tariff Increases: A majority, 86% of German firms in China, have been affected by the latest tariff increases. This figure rises to 93% in the automotive sector[3].
- Strategic Localization: Many German companies have adopted an "in China for China" strategy, which means they produce and invest primarily for the Chinese market. This strategy helps buffer their operations from direct US exposure, allowing them to maintain their investment plans in China[1].
Expectations from the German Federal Government
While specific expectations from the German federal government are not detailed in the available information, German companies in China likely expect support in navigating the complexities of the trade conflict. This might include:
- Trade Facilitation: Support in maintaining trade relationships and ensuring that German companies can continue to operate effectively despite global trade tensions.
- Economic Support: Assistance in managing the indirect economic impacts of the trade conflict on their operations in China.
- Diplomatic Efforts: Encouragement for diplomatic efforts to stabilize the trade environment and reduce tensions between major economies.
- German companies in China are more affected by the indirect ripple effects of the US-China trade conflict than by their direct trade with the US, due to the tariffs impacting China's overall economic landscape.
- A majority of German companies operating in China, 86%, have been impacted by the latest tariff increases, with this figure rising to 93% in the automotive sector.
- Many German firms have adopted a strategic approach to localization, focused on serving the Chinese market primarily, helping to minimize their direct exposure to the US market and its trade conflicts.
