Germany’s Industrial Dilemma: High-Growth Sectors Trapped by China Ties

The report, Industry with a Future, identifies 62 sectors vital for Germany’s transition, highlighting clean tech, electric motor production, and battery manufacturing as essential for preserving high-wage employment. These industries possess specialized expertise that is difficult for international competitors to replicate. However, the path to expansion is complicated by a dual dependency on China as both a critical supplier of parts and a primary market for finished goods. Co-author Marla Schiefeling emphasized that China serves as a competitor, buyer, and supplier simultaneously, leaving German policymakers struggling to reconcile the need for rapid scaling with the mandate to reduce geopolitical exposure.

Structural decline in the broader manufacturing landscape complicates this transition. Germany has shed roughly 420,000 manufacturing jobs since 2019, while exports to China have plummeted by 29 percent since 2021. Despite this, the study suggests that legacy giants—specifically automotive manufacturers like BMW, Mercedes, and Volkswagen—retain the technological infrastructure necessary to pivot toward green power grids and electric mobility. While traditional sectors like coal and oil refining face inevitable obsolescence, the authors propose a policy of strategic de-scaling to manage their decline without triggering economic shock.

Brussels is now testing the 'Made in EU' framework to address these vulnerabilities, with leaders such as Friedrich Merz and Emmanuel Macron advocating for European preferences in strategic procurement. Yet, analysts warn that mandating local production may backfire if domestic supply chains remain underdeveloped. For manufacturers reliant on Chinese imports, sudden shifts in sourcing requirements threaten to inflate costs significantly before local capacity can be established, potentially undermining the very sectors the policy aims to protect.