'Phantom Limb': Report Blames China Shock for Germany’s Industrial Malaise

Germany's industrial malaise, a topic of significant concern and introspection in Berlin, is being attributed in a new report to a "China shock" impacting its trade economy. The influential think tank, the Centre for European Reform, posits that this external pressure is the most significant factor behind Germany's economic slowdown, yet it remains the factor Berlin is least willing to confront directly. The report, authored by economists Sander Tordoir and Brad Setser, employs the evocative term "phantom limb" pain—Phantomschmerz—to describe the situation. This metaphor vividly illustrates the feeling of loss for what was once a vital component of Germany's economic strength: its export demand. The study highlights a dramatic shift: Germany's exports to China, as a percentage of its GDP, have plummeted by over 40 percent since their peak in 2021. Furthermore, a remarkable turnaround has occurred, with Germany now importing more capital goods from China than it exports to the country since mid-2025. This situation challenges the long-held narrative of Germany as Europe's unassailable industrial engine and suggests a need for a fundamental re-evaluation of its economic strategy. The report's call for stronger EU measures against Beijing underscores a growing sentiment that coordinated action is necessary to navigate the complex economic relationship with China and to protect Germany's industrial base.

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the China shock is now the most important cause of Germany’s malaise – even if it is the one Berlin remains least willing to confront