Resetting Ties: German Chancellor Merz's Diplomatic Balancing Act in China

German Chancellor Friedrich Merz embarks on a pivotal visit to China this week, aiming to recalibrate relations amidst economic strains and geopolitical shifts. This marks Merz's inaugural visit to China as chancellor, accompanied by top German business leaders, including automotive giants from Volkswagen, BMW, and Mercedes-Benz. Their industries have been severely affected by soaring competition from China's electric vehicle producers and hefty tariffs imposed by the US.

The visit comes in the wake of Merz's warning about a world where technological supremacy and raw materials are at the heart of great power rivalries. As Germany's largest trade partner, China's evolving trade dynamics have shifted from previous German surpluses to a significant trade deficit, exacerbated by what German officials see as an undervalued yuan. This deficit, nearing 90 billion euros, highlights the deteriorating business outlook for many German firms in China.

During the visit, Merz is slated to meet President Xi Jinping and Prime Minister Li Qiang, with expectations to sign key economic agreements. The trip underscores China's critical role in global trade amidst a challenging environment for Western companies. Issues such as overcapacity, competition distortion, and strategic export controls remain at the forefront of discussions, especially with the EU's efforts to safeguard its markets from underpriced Chinese imports.