“Made in Germany” is losing its importance. China is leaving German industry behind

Ashley Davis20/03/2026

0 64 5 minutes read

This is a statistical milestone that marks a historical breakthrough: in 2025, Germany imported more for the first time cars from Chinathan they exported there themselves. This phenomenon is a symbol of deeper changes in the global division of labor: China is taking over the role that Germany played for decades in the global economy.

“The Factory of the World” – this is what China has been called since the 1990s. For decades, this country has produced textiles, toys and electrical appliances for customers all over the world. Thanks to cheap, mass production Chinese producers have turned entire industries upside down. Companies moved factories and millions of jobs there from high-paying countries or less stable low-cost markets.

Germany benefited from the Chinese boom because the German economy was a “factory of factories”. Not the final products, but machines and tools that allowed other countries to start producing were a German specialty. Lathes came from Bielefeld, hydraulic pumps from Stuttgart and industrial robots from Augsburg. This also included high-quality components and semi-finished products such as valves.

This unique status is now a thing of the past as Chinese manufacturers move up the value chain. Exports of Chinese machinery and semi-finished products increased by over USD 175 billion last year. (approx. PLN 640 billion), while the export of consumer goods decreased for the first time since 2019. It is not refrigerators and laptops that drive China's export machine today, but valves, industrial engines, lithium-ion batteries, semiconductor components and equipment for the mining industry. Today, China provides the tools that allow developing countries to build their own factories.

Data collected by McKinsey Global Institute (MGI) shows that this process has recently accelerated: China's exports of semi-finished products increased by 9% in 2025, compared to 6% the year before. At the beginning of 2025, China already supplied over 40%. all machines and semi-finished products sold worldwide. During the year, half of global trade growth in this segment came from China alone. This is the result of the latest MGI report “Geopolitics and geometry of global trade”, which concerns over 90 percent. world trade in goods last year. The editorial team of “Die Welt” received a report from the research department of a consulting company before the premiere.

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Concrete examples show the scale of this change: exports of valves from China increased by over 20% last year; this increase alone represents roughly half of annual U.S. exports of these products. Chinese producers also sold abroad by approximately 20%. more lithium-ion batteries; this increase was equal to the combined exports of Poland and Hungary — the next largest suppliers. In both of these Central European countries, Chinese companies have large battery factories.

In fact, China benefits from the economic growth of other developing countries – another analogy to Germany's current role in the global division of labor. Nearly half of China's exports went to developing countries last yearwhile in 2017 they constituted only one third of the recipients of Chinese goods.

Jammed Germany. On the one hand, China, on the other, Trump

The growth engine for China is demand from Southeast Asian countries, India, the Middle East and Africa. Wherever new production capacity is built, China today supplies industrial basic equipment. It is also the result of a conscious investment policy countries. The “Made in China 2025” industrial program launched over a decade ago – aimed at transforming China from the “workshop of the world” into a leading producer of advanced technologies – has systematically supported this advancement in the value chain. Similarly, the five-year plan for 2021–2025.

For Germany, this change comes at the worst possible time. The German economy is in a bind: on the one hand, increasingly competitive Chinese producers who are taking away the market from German companies in their key areas, and on the other – the Trump administration, which is raising the prices of European goods in the US with tariffs.

This difficult situation is also visible in the statistics: last year, German car exports to the USA came under pressure. According to the Destatis statistical office, car and component manufacturers sold 17.5% more between January and November last year. less to the USA than in the same period a year earlier. At the same time, sales to China – the previous growth engine – fell by about a third. The German Economic Institute (IW) from Cologne even talks about a “real implosion”. In the longer term, it is even worse: compared to the record year of 2022, exports dropped by over 54%.

The machinery industry, which is the pillar of German exports, is directly affected by China's growing strength. Markets in India, Brazil and Southeast Asia that once relied on German know-how and equipment they now increasingly buy from Chinese suppliers. Last year, China overtook Germany for the first time as the world's largest exporter of machine tools. According to the Association of German Machine Tool Manufacturers (VDW), China's exports increased by 18 percent, while Germany's exports fell by 10 percent. Recently, China's share in the global market amounted to almost 22 percent, while Germany's – less than 17 percent.

The honor of Europe was saved by… Ozempic

Meanwhile, German and European companies have been able to take an attractive position in global trade in recent years. When the Trump administration imposed new tariffs and import rules on Chinese goods last year, U.S. imports from China plummeted by about $130 billion. (approx. PLN 480 billion), which created a huge supply gap. “Theoretically, Europe could have fulfilled it. In practice, this did not happen.” – write the authors of the MGI report.

Donald Trump announces tariffs during "Liberation Day". Washington, April 2, 2025

Donald Trump announces tariffs on 'Emancipation Day'. Washington, April 2, 2025PAP/EPA/KENT NISHIMURA / POOL / PAP

Ultimately, the EU captured less than 3%. redirected American demand, almost exclusively in the pharmaceutical sector. The increase in pharmaceutical exports was driven by American companies that massively accumulated stocks of active substances, especially for slimming and antidiabetic injections such as Wegovy and Ozempic. Outside the pharmaceutical industry – e.g. in aviation, railways and automotive – EU exports to the US have even declined. Southeast Asian countries and India were faster and probably cheaper: Vietnam, Thailand and India took over the final assembly of laptops and smartphones that previously came to the US directly from China. Europe was left out of the game.

Additional exports to the United States from developing countries included only partly Chinese goods that were merely redirected, relabeled, or subjected to minimal processing to circumvent U.S. tariffs. According to MGI's analysis, Chinese components accounted for less than half the value of products exported by these countries, a Asian economies' exports grew faster than their imports. Both indicators are evidence of a real increase in added value in these countries, which have for some time been attracting industrial companies fleeing from the increasingly expensive China.

European companies still have room to show off their skills

Despite growing Chinese competition in the machinery and equipment sector, German companies also have their opportunities. Recently, they have significantly developed trade with other European Union countries. In developing countries, there is a growing demand for products in which Europeans are strong. Medical equipment, scientific equipment and specialized machines are noted sales growth in Latin America, the Middle East and Asia. In diagnostics, prostheses and heart pacemakers, German companies still have an advantage.

Additional opportunities are provided by the boom in artificial intelligence: the development of data centers around the world drives demand for network devices, cooling and power systems – these are areas in which European companies have a strong presence.

The EU's free trade agreements with India and the Mercosur bloc signed in January may open new export routes in the medium term, especially for machinery manufacturers and pharmaceutical companies. This week, Paraguay became the last Mercosur country to ratify the agreement. The agreements provide for the gradual opening of marketsso they will not change the situation in the short term, but in the long term they may be important.

German industry must therefore prepare for this its advantage as a supplier to the “factory of the world” will decline. What will be crucial for the country's prosperity and jobs will be what new role Germany will play in the future global economy and how quickly German companies will define it.

Ashley Davis20/03/2026

0 64 5 minutes read