The specter of deindustrialization has been haunting German political discourse since the late 2010s. Across the political spectrum, the supposedly imminent demise of German industry has largely been attributed to the country’s numerous energy policy failures. Depending on whom you ask, the principal cause is the absence of “cheap” Russian pipeline gas, a general dependence on fossil fuels, or, conversely, the expansion of renewable energies. These arguments have gone unexamined for years — until now.

It is starting to become clear that the main reasons lie elsewhere. In an ironic twist, the repeat offender when it comes to running persistent export surpluses has been falling prey to its growing trade imbalances with China: goods imports are displacing German production while exports to China have been falling. The recent dramatic worsening of this imbalance is driven by an intensification of Chinese industrial policy. But years of self-destructive underinvestment and austerity in Germany have greatly exacerbated the situation.

It is not clear that German chancellor Friedrich Merz, who was in Beijing last week to discuss the two nations’ trade relations, has the right diagnosis of his country’s malaise. Though he is now alive to the importance of bilateral trade with China, Merz and powerful political factions in Germany and Europe still believe that averting Germany’s decline requires a race to the bottom on wages and regulations. This begs a number of questions: What has actually been driving deindustrialization; what role has China played; how should Sino-German relations be transformed; and should Germany emulate China, as China once did Germany?