Watching China in Europe—May 2025

Enter Merz

Next week a new German government led by conservative Friedrich Merz will be sworn in. As I’ve argued on these pages for years, Germany is the key to a more united and effective European approach to China. Under Merz’s predecessors Olaf Scholz and Angela Merkel, Berlin often put the narrow, short-term interests of a handful of large German companies above the long-term economic and strategic priorities of the country, and of Europe as a whole. This was evident last year when Scholz worked tirelessly behind the scenes to try (unsuccessfully) to torpedo the European Commission’s anti-subsidy trade case against imported electric vehicles from China. 

The episode showed that, even after years of intense German debate on China culminating in the release of a toughly worded strategy in 2023, Berlin’s approach to Beijing is still tainted by outsized fears of retaliation, a lack of appreciation for a united Europe’s leverage, and a refusal to acknowledge or act on shifting dynamics in the economic relationship. Will this change under Merz? At a time when Donald Trump is relegating the transatlantic relationship to the scrap heap, and Germany is confronted with an avalanche of other challenges, it is difficult to provide a definitive answer. When I look at Merz, the make-up of his government, and the coalition blueprint they agreed last month, I see good, bad, and ugly.

The Good

Let’s start with the good. Merz himself has shown a willingness to speak about China in much clearer language than Scholz or Merkel ever did. After the cacophony of the Scholz years, he clearly understands the need for a more coordinated approach in Berlin and in Europe. His promise to create a national security council (NSC) and his determination to repair strained ties with France and Poland are encouraging. And the coalition agreement between his conservatives and the Social Democrats ticks quite a few boxes, from a commitment to de-risking and economic security to an acknowledgement that relations with China have become increasingly defined by systemic rivalry.

Some of his key appointments also give reason for cheer. Sitting in the chancellery will be Michael Clauss, Germany’s ambassador to the EU. He was previously Berlin’s top diplomat in Beijing, where he earned a reputation as an outspoken critic of China’s authoritarian tilt in the first half-decade of Xi Jinping’s rule. Clauss, who will serve as Merz’s top adviser on Europe, will be the first person in a senior role in the chancellery who—as far as I can recall in my 20 years in Berlin—has extensive experience in China. After nearly seven years in Brussels, he also knows the EU, where much of the heavy lifting on China policy will take place, like the back of his hand. 

The Bad

There are also reasons for concern. Merz ally Jacob Schrot has been given what amounts to two full-time jobs: running the chancellor’s office and overseeing the new NSC. Some CDU officials view this as a sign that the NSC will be a neglected sideshow instead of a pivotal body for coordinating foreign and security policy across the German government. “You can forget about the national security council,” a CDU foreign policy adviser told me this week. The fact that Germany’s new foreign and economy ministers, Johann Wadephul and Katherina Reiche, come from Merz’s party, means there will be less internal jousting on China policy than under Scholz, who clashed repeatedly with the hawkish Greens ministers who held these posts.

But neither Wadephul nor Reiche are political heavyweights who seem likely to drive policy in bold new directions. Wadephul was once an ardent defender of Merkel’s Huawei-friendly 5G policies, although he has adopted a harder line in recent years, co-authoring a toughly worded conservative party paper in 2023 that called for a Zeitenwende in Germany’s China policy. Reiche is an energy expert who will be learning on the job about economic security, a topic that should be at the top of her ministry’s priority list.

The Ugly

This brings me to the ugly stuff. If you delve into the nooks and crannies of the 146-page coalition agreement, you will find some shockers. Exhibit A is the government’s language on export controls, where it is promising a “paradigm shift” to simplify and accelerate the approval of export licenses. “Prior export approval would no longer be required,” the text says. In the nerdy world of export controls, this amounts to something of an earthquake. The new coalition, if I understand correctly, wants to outsource the approval of export licenses to the companies themselves—at a time when government scrutiny of dual-use technology exports is on the rise across the developed world.

 I’m not the only one surprised by this language. “It’s complete nonsense,” an official at the German Federation of Industries (BDI) told me. The BDI and its DIHK sister organization plan to voice their objections directly with the government, once it is in place. Diplomats from other European countries were just as dumbfounded. “It shows that there is still a lot of naivety in Berlin. There are people who don’t understand the threats that we’ve been talking about for years now,” one told me. 

Another mystery surrounds a last-minute change to the language on 5G networks. The initial published version of the coalition deal stated that, in the future, only components from “trustworthy states” should be allowed in Germany’s critical infrastructure, a nod to China and Huawei’s role in the German telecommunications network. In the final version, that reference was removed and the language softened. I could not come up with a reason for the change, although several officials said they suspected a late intervention from Deutsche Telekom.

China Shock

This may all sound rather nitpicky. But it suggests that, beneath the surface, there is still no consensus on the concept of economic security among the governing parties in Berlin. I see a risk that simplistic, black-and-white economic thinking seeps into the way this government thinks. Instead of striving for a balance between economic and security priorities, the coalition could come to see its stated goal of de-risking from China as inherently at odds with its push to regain competitiveness, reduce bureaucracy, and get the German economy growing again.

It will be up to Merz, above all, to ensure this does not happen. He will need to listen to the growing voices in German industry that are warning of a China shock to their business, and not just to those that are doubling down on the Chinese market. The VDMA, which represents German machinery and equipment manufacturers, will come out with a comprehensive new China report later this month that makes the risks clear. “The message in the report will be a new one,” a VDMA official told me. “We will be departing from our unwavering, decades-long faith in free trade and open markets. It will be a signal to the politicians.”

European Puzzle

Germany, of course, is just one big piece in a broader European puzzle on China that has been shattered by Trump’s return. The course of the transatlantic relationship will color how Brussels, Berlin, Paris, and other capitals approach Beijing in the months ahead. And this relationship is crumbling, if you consider the state of Ukraine peace talks and US-EU tariff negotiations. On trade, there is still total confusion on the European side about what the Trump team really wants. “The landing zone isn’t clear,” an EU official told me. “We can’t make an offer if we don’t know what we’re buying.”

The US side has sent the message that the 10% baseline tariffs it introduced on April 2 are here to stay, and that the 25% tariffs on steel, aluminum, cars (and soon pharmaceuticals?) are also non-negotiable. “If this is the US position, there is no room for negotiations,” a senior European diplomat who is privy to the exchanges with Washington told me. I’m told that the Americans are trying (unsuccessfully) to convince countries such as Japan and Australia to drop their support for Ukraine and divert resources away from Europe to China. And yet one diplomat who travelled to Washington recently was told that crushing European liberalism was a higher priority for some members of the administration than going after China. “Do they really think they can dispose of Europe if containing China is their ultimate goal?” an exasperated EU official told me.

Sanctions Signal

Can China take advantage of the dire state of transatlantic ties? It appears to be trying. This week, the Chinese mission to the EU informed European Parliament President Roberta Metsola that Beijing was lifting the sanctions it imposed on members of the assembly in 2021, a move that led to the collapse of an EU-China investment pact. But the EU will need more than symbolic gestures like this at a time when concerns about a flood of Chinese exports into Europe are growing. “The removal of sanctions does not create a new political reality with China,” an official close to Metsola told me. An EU diplomat added: “This is not part of some grand plan that Metsola has been dreaming up with [European Commission President] Ursula von der Leyen or [European Council President] Antonio Costa. What the parliament does, it does in isolation.”

That does not mean the Commission is ruling out some sort of agreement with Chinese leaders when they meet in Beijing in the July 21-25 week, following an EU-Japan summit. But neither is there confidence that China will be willing and able to make the tangible concessions that EU trade officials say they will continue to insist upon. We could get more signals next month when Chinese Premier Li Qiang may come through Europe for a UN conference on oceans and Foreign Minister Wang Yi visits Paris and Brussels for talks. But the likelihood is that the prospects of an EU-China détente will become clear only in the weeks leading up to their summit, when Brussels and Beijing can see through the thick fog of Trump’s trade war. “We have three months to do everything or nothing,” an EU official said.