A leading Brussels thinktank has warned that Germany must stop admiring China's success in the EU or it will sleepwalk into the kind of deindustrialisation the United States experienced 25 years ago. The Centre for European Reform (CER) said that Europe's largest economy risks a repeat of what happened in the US in 2001, when a sudden surge in imports permanently hollowed out towns in the American midwest.
China's surplus with Germany has doubled between 2024 and 2025 from $12bn (£9bn) to $25bn, creating a $94bn trade imbalance. The CER report highlighted that 'China Shock 1.0' not only led to losses of up to 2.5 million jobs but was also marked by a rise in suicides, divorce, and drug use in US towns that lost industries to China. That fraying of the US social fabric, it said, was 'an eerie warning shot for Germany's car and machine-building cities like Wolfsburg and Stuttgart', the homes of Volkswagen and Mercedes-Benz.
'Germany remains hesitant, even as China has already eaten much of German industry's lunch and is preparing to start on dinner,' said the CER. Entitled 'China Shock 2.0: the cost of Germany's complacency', the report concluded that 'Berlin cannot keep admiring the problem', adding that the risk for Berlin was acute, yet German political leaders had 'struggled to see the problem clearly'.
The warning comes amid a growing consensus that the Chinese export boom, underscored by Xi Jinping's laser-focused five-year policy cycles, has triggered a second China shock that is putting industry and jobs at risk worldwide. However, the CER said that in the EU, the shock was more consequential in Germany than any other country and was worsening.
The report pointed out that Beijing is running a policy project named '10,000 little giants' that specifically targets Germany's Mittelstand, the country's ecosystem of middle-sized, innovative industrial suppliers and firms. Germany was described as 'frantically searching for culprits' for its economic woes, with high energy prices and bureaucracy dominating the political conversation instead of China.
Germany's failure to diagnose what was going on resembled the 'phantom pain' of an amputee, the CER said, adding: 'That missing limb is export demand, chopped off by China's profound pressure on Germany's industrial base.' The root of the problem is ballooning Chinese exports around the world as imports into China decline, with the country reporting a record $1.2tn surplus in 2025.
The CER blamed the economic imbalance on three issues: dampened domestic demand in China; an extremely unfavourable exchange rate, potentially undervaluing the yuan by up to 30% against the euro; and a Beijing policy that ruthlessly targets Germany's core industrial base. The thinktank said political leaders need to wake up: 'Waiting for the shock to correct itself is not prudence, but a decision to let deindustrialisation run its course.'
It said the best option for Berlin is to go on the offensive 'and support Paris in pushing the IMF and G7 to confront China's currency undervaluation and one-sided trade model'. Industrial leaders in Europe and China have told the Guardian of their fears that European industry is being cannibalised, while one leading German industrialist said Europe might as well become 'a province of China' such is the endemic damage.
