From Honeymoon to Hard Choices: Merz’s Coming Balancing Act

Amid a volatile global trade landscape and shifting alliances, Germany’s incoming Chancellor Friedrich Merz faces the urgent task of recalibrating Sino-German relations, transforming what was once a “honeymoon” into a high-stakes balancing act between economic interdependence and mounting strategic concerns.

Over the past decade, China has emerged as a pivotal issue in German political discourse, evolving from a peripheral topic into a defining element of foreign and economic policy. This shift accelerated in the early 2000s as China’s economic ascent and growing influence in international governance prompted Germany’s federal politics to take notice. Under Angela Merkel’s chancellorship (2005-2021), Sino-German relations entered a period often characterized as a honeymoon. While many European economies faltered in the aftermath of the global financial crisis and subsequent euro crisis, Germany stood out for its comparatively strong performance – thanks, in large part, to the success of German businesses in China’s booming market. However, the election of Donald Trump in 2016 and his administration’s confrontational stance toward Beijing signaled a broader downturn in China’s relations with the West. Even so, Germany was initially hesitant to reconsider its close economic ties with China.

Recalibration Under the Traffic Light Coalition

Well into the 2010s, Germany’s main political parties viewed China as both a partner in matters of global governance and an economic competitor. Yet this outlook began to shift meaningfully in the run-up to the 2021 federal election. By then, Beijing’s growing global assertiveness had led parties such as the environmentalist Greens and the liberal FDP to advocate a tougher stance, including explicit references to the Taiwan question. Once the election brought the so-called “traffic light coalition” (SPD, Greens, FDP) to power, Berlin’s China policy underwent significant upheaval.

Under Foreign Minister Annalena Baerbock of the Green Party, a values-based feminist foreign policy favored creating some distance from China on human rights grounds – though its implementation proved only partial. At the same time, the government sought stronger ties with like-minded Indo-Pacific democracies, highlighting them as value partners, though it largely avoided discussing Taiwan and sticking to Germany’s One-China policy. Despite introducing a new national security strategy and a dedicated China strategy, the traffic light coalition grappled with internal budget disputes that culminated in the FDP’s departure and a subsequent snap election.

The New Government and the 2025 Turning Point

In the recent snap election, the center-right CDU – led by former Chancellor Angela Merkel’s successor Friedrich Merz – emerged as the strongest political force. All three parties of the preceding traffic light coalition suffered losses, with the FDP failing to surpass the five-percent threshold required for representation in the Bundestag. Meanwhile, the far-right populist AfD came in second, leaving Merz with only one viable path to the chancellorship: forming a so-called Grand Coalition with the SPD. Even before formal coalition negotiations began, the Bundestag passed a one trillion-euro investment debt package – an ambitious initiative designed to address chronic underinvestment in infrastructure and modernize key sectors such as defense, ultimately aimed at bolstering Germany’s long-term competitiveness and security. Having now concluded their coalition talks, the CDU and SPD have presented their coalition agreement to the public, detailing a comprehensive program for the next four years.

It is this setting, in which Germany perceives China mostly as a systemic rival while simultaneously acknowledging Beijing’s status as one of its most critical economic partners, reflecting a deep tension between strategic vulnerabilities and trade interests. The newly published coalition agreement underscores the importance of de-risking rather than decoupling: a dedicated parliamentary commission will be set up to conduct annual assessments of risks, dependencies, and potential vulnerabilities in Sino-German relations. The agreement also highlights the expansion of security and defense research, the strengthening of academic resilience (especially in China studies), and the pursuit of rule-based reciprocity in trade and investment. In line with established policy, the new coalition reaffirms Germany’s commitment to the One-China policy while clarifying that any change to Taiwan’s status quo must occur peacefully and through mutual consent, reflecting an enduring emphasis on stability and international norms.

A Shifting Global Order

While Germany was preoccupied with internal political transitions and the search for a new Chancellor, global dynamics accelerated toward a full-blown trade war. Under President Trump, the United States not only signaled a decisive break from the liberal international order it had established after World War II but also aggressively shifted away from the neoliberal framework of open global trade that it once championed. Since Trump’s initial imposition of tariffs – targeting both (former) allies and adversaries alike – subsequent retaliatory measures by trading partners such as China and the European Union, followed by further American countermeasures, have created a downward spiral in global trade and significantly destabilized international stock markets. The Trump administration actively targeted China while pressuring the EU, a move that has increasingly called into question the long-standing transatlantic alliance that underpinned mainstream German politics, particularly within the CDU.

Against this turbulent backdrop, the future of Germany-China relations appears more uncertain and open-ended than ever. On one hand, longstanding concerns about dependency on China remain valid as Chinese industries continue to outcompete and out-innovate Germany in key sectors like the automobile industry. Moreover, China’s slowing economic growth and challenging market conditions make the case for de-risking even stronger. On the other hand, the traditional Western alliance – with the United States as its economic and military linchpin – is showing signs of crumbling before our eyes. In the potential aftermath of a waning American role in the so-called free world, China is positioning itself as a reliable partner for Europe, and Germany in particular, by championing the very neoliberal international order that once propelled its global influence. Yet while China does indeed advocate for neoliberalism on the global stage, it is and has always been an inherently mercantilist power that has skillfully leveraged the neoliberal framework to its own advantage.

Navigating Sino-German Relations under Merz

In this evolving global context, Friedrich Merz’s coming government faces the delicate task of reconciling Germany’s long-standing economic interdependence with China and the imperative to safeguard strategic interests. The tension between vital trade relations and rising awareness of systemic rivalry should lie at the heart of Berlin’s new China policy, underscoring the necessity of de-risking rather than outright decoupling.

In practical terms, this should mean strengthening academic expertise on China and securing key industries like weapons manufacturing. At the same time, Berlin should also place an emphasis on keeping Beijing as a partner, especially as Sino-German collaboration can be necessary to handle the economic and financial fallout of the Trump administration. In the face of a trade war and a possible global recession, multinational cooperation is not just desirable but needed.