Germany’s Finance Minister Heads to Beijing Amid Escalating Trade Tensions with China
German Finance Minister Lars Klingbeil is set to visit Beijing this Sunday for the German-Chinese Financial Dialogue. The talks will centre around rule-based trade, raw materials, and the ongoing conflict in Ukraine. This comes amidst growing concerns about China's trade practices and its targeting of key German industries.
China's economic model, characterized by state capitalism, has long operated outside international norms. It has failed to honour WTO pledges, providing excessive state subsidies and manipulating its currency. Now, China is eyeing Germany's strategic sectors like automotive, chemicals, solar, and robotics as part of Xi Jinping's Five-Year Plans. These plans prioritize high-tech industries, manufacturing, and green energy, with German companies like Volkswagen, BMW, and Siemens in the crosshairs.
While Germany could adopt aspects of China's industrial policy to boost competitiveness, it must navigate potential pitfalls such as currency devaluation and wage suppression. The U.S. experienced significant deindustrialization and unemployment in the early 2000s due to the 'China shock'. Germany, too, faces a trade imbalance, with China importing fewer European products while its exports surge.
When China joined the WTO in 2001, it rapidly outpaced Western competitors due to economies of scale and low production costs. However, the 'China shock' had a less severe impact in the German-speaking world compared to the U.S.
Minister Klingbeil's visit aims to address these issues and foster a more balanced trade relationship. Germany must weigh the benefits and risks of engaging with an economy it relies on but gains little in return. The dialogue in Beijing could set the stage for a more rule-based trade dynamic, protecting German industries while learning from China's industrial policy successes.
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