Germany thrived in the first China Shock. But the next one could prove catastrophic

Sander Tordoir, an economist at the Centre for European Reform, a think tank, says a big reason was that China's export boom back then was in low-end manufactured products like textiles, toys, consumer electronics, and furniture, "not in the industries that are the hallmark of the German economy, namely autos, chemicals, and machines."

...Many economists are now warning the world about the onslaught of "a second China Shock." Tordoir says the one crucial driver of this shock is that, essentially, China has been trying to export its way out of a domestic slump ever since its real-estate bubble burst around 2021. Chinese exports have exploded since then.

...And, Tordoir says, high U.S. tariffs against Chinese goods are hurting Germany through another channel: "Chinese products are bouncing off the U.S. tariff wall and are being rerouted." So, Tordoir says, Chinese exporters are looking to sell more in Europe, where there are much lower tariffs.

Tordoir says one core issue in all of this is that Chinese consumers don't consume enough, and he hopes that one win-win solution for everyone will be convincing China to pursue policy reforms that increase their domestic consumption and stop their export onslaught.

...Tordoir said it's worth studying how the Chinese government made strategic investments and pursued far-sighted industrial policies that are now paying incredible dividends. It may be harder to wrangle a diverse group of liberal democracies with different interests, but he hopes that Germany will join other EU nations to develop EU-wide industrial policies to boost their own strategic sectors.