Summary of the Key Points
This news article focuses on the Sino-European trade conflict, particularly in the automotive sector. The main issue is that the European automotive industry (led by Germany) is facing a structural crisis: the EU's trade balance with electric vehicles from China has shifted from a surplus to a deficit. Volkswagen in Germany even plans to close local factories and lay off 100,000 employees. This is due to China's leadership in core electric vehicle technologies such as batteries and software, as well as internal divisions within the EU regarding its trade policy towards China (between more aggressive and pragmatic factions). Through interviews with European consulting advisor Günther Schuh, the article analyzes the truth behind the trade imbalance, the differing attitudes of companies, and the potential future direction of the Sino-European trade conflict, while also providing recommendations for Chinese and German businesses.
I. The "Winter" in the European Automotive Industry Is Not Temporary; It Represents a Fundamental Change
Many people think that the decline in European car sales in China is just a temporary market fluctuation, but experts believe it represents a structural shift—European technological advantages are turning into disadvantages. For instance, batteries, which account for 40% of the total cost of electric vehicles, are a key component, and China has mastered battery technology and the associated supply chain (with companies like CATL and BYD leading the way), while Europe lags behind by several decades. In the past, Europe thrived on internal combustion engines and transmissions; however, with electric vehicles, the competition now lies in software, autonomous driving, and digitalization, areas where Chinese companies (such as those that have transitioned from smartphone manufacturing to automotive production) are advancing faster.
German expert Dudenheffer warns that if German engineers do not work in China's fast-paced environment, they will fall behind in development speed. Europe can only maintain its advantage in niche high-tech fields like medical lasers and vertical takeoff and landing aircraft, but the automotive industry, which is a mass-market sector, has been surpassed by China.
II. The Sino-European Trade Deficit in the Automotive Sector: There Are Hidden Issues Behind the Numbers
The EU reports importing cars and parts from China for 22 billion euros in 2025, while exporting only 16 billion euros, resulting in a deficit for the first time. However, these numbers can be misleading because the statistics are based on place of production rather than brand ownership. For example, BMW MINIs produced in China and then shipped to Europe are counted as Chinese imports; cars manufactured by Volkswagen in Hefei and exported to Europe are also considered Chinese imports. Conversely, parts produced by Bosch in Shanghai and assembled in Germany are recorded as Chinese imports. Therefore, a large portion of the deficit consists of products manufactured by European brands in China, not entirely by Chinese brands. Moreover, European brands are increasingly using China as an export base to reduce costs, while Chinese brands are setting up factories in Europe to avoid tariffs. This trend of mutual dependence will likely become more common in the future.
III. Divisions Within German Companies: The Automotive Industry Fears Frictions, While the Steel and Pharmaceutical Industries Support a Tougher Approach
German companies have very different attitudes towards the Sino-European trade tensions:
- Automotive Industry: This sector is most concerned about trade frictions because its supply chain is global (with parts coming from China and markets located in China). Policy uncertainties make them hesitant to invest in new factories (which require billions of euros) due to concerns about sudden tariff changes. Companies like Volkswagen, Mercedes-Benz, and BMW are worried about Chinese countermeasures, such as restrictions on their market presence in China.
- Steel and Pharmaceutical Industries: These industries are more supportive of a tougher stance because they are less affected by Chinese competition and may even benefit from tariffs to protect their markets.
German Chancellor Merkel has called for a tough approach towards China, but this is largely a political statement. Companies are actually more concerned about policy instability—such as sudden tariff increases or changes in subsidies, which can be more detrimental than competing with Chinese companies.
IV. The Sino-European Trade Conflict Will Not Lead to Complete Decoupling, but Frictions Will Continue
Experts believe that the relationship between China and Europe will not lead to a complete separation like that between the US and China:
- Europe does not want to return to the "Iron Curtain" era of division; it prefers a multi-polar globalized system. While the US aims to exclude China from certain markets, Europe relies on Chinese markets and supply chains (such as for batteries) and cannot completely isolate itself.
- The future trend will be one of temporarily tighter measures followed by periods of relaxation: Tariffs may increase at times, and negotiations may ease tensions, but the conflict will persist. As China becomes stronger in high-tech fields, Europe will inevitably face friction as it tries to protect its industrial base.
Additionally, China's trade surplus requires the export of capital (such as through purchasing European factories and minerals), which is more beneficial for the European economy than buying government bonds, as factories create jobs, whereas bonds only allow the government to borrow more money.
V. "Survival Guidelines" for Chinese and German Companies
For Chinese Companies (especially in the New Energy Vehicle Sector):
- Be Pragmatic and Flexible: Do not confront European rules head-on. If the EU requires 70% of components to be locally produced, consider setting up factories in Europe (such as BYD's facility in Hungary) or finding local partners. The example of Belgium selling Russian natural gas to Germany via China shows that there are always compliant ways to comply with regulations.
- Focus on Niche High-Tech Areas: Beyond the automotive sector, Chinese companies can seek opportunities in European niche markets (such as medical lasers and animal IoT), where Europe has technology but needs Chinese manufacturing and market presence.
For German Companies (especially Automotive Manufacturers):
- Maintain Trust: At a micro level, maintaining good relationships with Chinese partners is essential because trust is the foundation of globalization; without it, cooperation is impossible.
- Diversify Risks: Establish research and development centers in China, the US, and Europe (for example, Volkswagen's technology center in Hefei) to avoid being reliant on a single market. This way, companies can have multiple product lines to cater to different markets if policies change in the future.
The core message of this article is that the crisis in the European automotive industry is a natural outcome of industry transformation, and the Sino-European trade conflict is a result of developmental differences between the two regions. Neither side wants complete decoupling, but they need to find new balance points. For companies, being pragmatic and flexible is the best strategy for adapting to these changes.