Kiel researchers: 'We should exploit China's subsidies. If China offers us its products cheaply, we should accept this gift'

Stefan Kooths, head of economic research at the Kiel Institute for World Economy, urges Germany and other Western nations to strategically leverage China's state subsidies rather than resorting to protectionist measures like tariffs. Kooths contends that imposing tariffs on cheap Chinese imports would ultimately burden German consumers and impede the crucial structural transformation Germany needs to undergo.

"We should exploit China's subsidies. If China offers us its products cheaply, we should accept this gift," Kooths stated, emphasizing a pragmatic approach. He acknowledges that China has evolved from a significant market for German exports to a formidable competitor, driven by both market forces and state intervention. While initially known for mass-produced, labor-intensive goods, Chinese companies now offer high-quality industrial products, directly challenging German manufacturers.

Kooths points to the OECD's findings that 60 percent of China's global market share gains stem from state subsidies, questioning the fairness of this competition. He differentiates between China's market-driven catch-up process and the government's directed production through subsidies, suggesting the latter is not a sustainable long-term strategy. However, he notes that Beijing's approach is partly a response to massive subsidies offered by Western governments for decarbonization goals, such as electric vehicles and renewable energy, which China has capitalized on by boosting its own production and exports.

The researcher highlights that China has created significant overcapacity, now exporting these goods at subsidized prices. He views this as a form of state planning at the West's expense. Despite the potential geopolitical implications and China's own economic imbalances caused by this export-focused model, Kooths maintains that the most effective strategy for Germany is to benefit from the low prices, rather than erecting trade barriers that would stifle domestic industry and consumer welfare.