German leader adopts hedging strategy on world stage

German Chancellor Friedrich Merz has had a challenging first year in office. However, in the past few days he has faced his toughest foreign policy test yet with key visits to both Washington and Beijing.
Merz’s trip to the US on Tuesday was overshadowed by the hostilities in the Middle East. While President Donald Trump and Merz have key policy differences, the mood music between them is significantly better than that between the US leader and former German leader Angela Merkel from 2017 to 2021.
Trump went out of his way to say that he has a good relationship with Germany and Merz in particular, calling him an “excellent leader,” an assessment that stems in part from Germany’s boost to defense spending. Merz has also worked hard in private to cultivate support from Trump and may now be his favorite leader in western Europe alongside Italian Prime Minister Giorgia Meloni.
Yet, important as this could be in the future, on issues such as Ukraine, Merz’s US trip may not have been as important as his earlier one to Beijing last week. While the German leader wants to maintain a strong relationship with Trump, he is aware this may not be possible, and is therefore hedging his bets with China.
Merz entered office last year warning that Germany’s ties with China are on an unsustainable path. This is important as Berlin is currently Beijing’s biggest trading partner.
Before becoming chancellor, Merz cautioned German firms against making bigger investments in the world’s second-largest economy. He warned: “If you take this risk, do it in such a way that it doesn’t endanger the entire company group if you have to write off this investment from one year to the next. Under no circumstances should you turn to the state, to the federal government of the Federal Republic of Germany, to help you economically in such a situation.”
Fast forward to today, and Merz sought last week to make clear to President Xi Jinping and other top Chinese officials that Germany and the EU at large have no fundamental conflicts of interest and, instead, share extensive common economic and political interests. He chose not to describe Beijing as a “systemic rival” — a description used by his predecessor, Olaf Scholz, which annoyed key Chinese leaders.
However, Merz claimed there are “very specific concerns regarding our cooperation, which we want to improve and make fair.” Top of the list for Merz is the growing German trade deficit with China which in 2025 grew to over €89 billion ($105 billion), up from nearly €67 billion in 2024.
Yet, as big an economic and political problem as this is becoming for Berlin, there may be the seeds of an opportunity, too. For China’s growing dependence on the European market, which coincides with Chinese domestic demand falling, offers potential leverage, if played skillfully. 

China’s trade surplus with the EU hit a record recently.

Andrew Hammond

Merz’s remedy is centered around his concept of a more “balanced, reliable, regulated and fair partnership with China.” This includes fairer competition and the need to “be able to rely upon agreed rules” in areas such as Beijing’s state subsidies, restricted market access, and complex regulations. He has also railed against what he sees as the undervalued yuan.
Given that China’s trade surplus with the EU also hit a record recently, Merz discussed wider measures which Brussels has set in motion against Beijing. One of these is levying tariffs of up to 35 percent on Chinese electric vehicles, on the basis of unfair subsidies. Beijing has retaliated with inquiries into the European dairy and brandy sectors. Another example is rare earths, with Merz warning against mooted Chinese restrictions requiring EU-based exporters to secure licenses from Beijing, which controls over 90 percent of global processing capacity of these metals.
Chinese Premier Li Qiang told Merz that Beijing wants to cooperate more in key areas such as artificial intelligence, biomedicine, automobiles, and chemicals. Moreover, China announced it will buy about 120 aircraft from European aviation giant Airbus.
Beyond business, Merz raised a host of challenging geopolitical questions with Chinese leaders, including on Ukraine and Taiwan. The German chancellor called for Beijing to put greater pressure on Russia to end the war in Ukraine. While China’s public position is officially one of neutrality, it has provided significant diplomatic support for Moscow. Merz also stressed that dialogue must decide Taiwan’s future, rather than conflict.
Overall, Merz declared that he was satisfied with his China visit, but that Germany and the EU at large need to find a new balance in relations with Beijing. This comes in a context in which the idea of closer economic relations with China has become less popular within Germany than it was under Merkel with her “change through trade” philosophy regarding Beijing.
To be sure, before the pandemic, there had been hopes in much of Germany that this vision might be borne out, and the rising superpower has generally enjoyed growing influence across much of the region. In the past five years, however, Sino relations with Europe and the wider West have become chillier.
While Europe still values its relationship with China, the direction of travel for policy toward Beijing has been in a more challenging direction. Even on an issue where breakthroughs have been made, such as the China-EU bilateral Comprehensive Agreement on Investment, ratification of this key economic deal in the European parliament has stalled for years.
Taken together, Germany’s relations are at a key moment with both China and the US. Merz wants to have cordial relations with Trump and Xi, but this may not ultimately be possible, hence his hedging strategy to try to ensure ties with both do not break down at the same time.

• Andrew Hammond is an associate at LSE IDEAS at the London School of Economics.