Germany’s Strategy of Balancing China and the U.S. and Bolstering Competitiveness

Looking to balance China and the U.S. has made Peter Altmaier a very busy man these days. The German Federal Minister for Economic Affairs and Energy is traversing Silicon Valley and Washington, DC, this week, talking technology and trade. Only two weeks ago, he made a similar trip in China.

Chinese media largely glossed over Altmaier’s meetings with scores of government officials in Beijing and directed their attention to his “factual” talks with Huawei CEO Ren Zhengfei. Germany has been under pressure from the U.S. government, citing security risks, to exclude Huawei from its 5G infrastructure network. Doing so would not only significantly increase the cost of 5G infrastructure construction in Germany, but also draw ire from China, its biggest trade partner.

While Chinese media lauded Altmaier’s declaration opposing discrimination against individual companies, Berlin’s independent approach is not likely to appease China hawks in Washington.

In an effort to depoliticize the Huawei debate, the German government opted to draw up stringent security standards for the deployment of 5G infrastructure. A decision on Huawei’s participation now depends on technical reviews from Germany’s Federal Office for Information Security (BSI). While Chinese media lauded Altmaier’s declaration opposing discrimination against individual companies, Berlin’s independent approach is not likely to appease China hawks in Washington. Furthermore, Germany’s “unbiased” technical reviews could hit U.S. telecom equipment producers. BSI president Arne Schönbohm conceded in a recent interview that components from Cisco could be excluded from Germany’s 5G network if they do not meet Germany’s security standards. Berlin’s efforts to stay impartial may instead attract criticism from both Beijing and Washington.

Despite potential backfire from both sides, this approach embodies the first part of Germany’s strategy, which seeks to strike a balance between China and the U.S. and find solutions that can be multilateralized and avoid escalation. Without choosing sides, engaging both China and the U.S. on issues that could generate compromise bolsters Germany’s credibility as a partner and builds trust between competitors in a drawn-out global battle to sort out new rules of trade and investment.

Germany is also frustrated by China’s restrictions on market access, slow reform of intellectual property rights protection, and Beijing’s long-standing industrial policy that helps to jump-start entire industries through massive government subsidies.

Beijing has intentionally solicited German support in dealing with issues such as U.S. tariff tactics and export controls, which also frame Altmaier’s visit to Washington. While the Trump administration’s auto tariff threat still looms and there is no end in sight to U.S. blockage of the WTO Appellate Body, Germany is also frustrated by China’s restrictions on market access, slow reform of intellectual property rights protection, and Beijing’s long-standing industrial policy that helps to jump-start entire industries through massive government subsidies. As Altmaier pointed out before and during his visit in China, Germany now regards China as a competitor and needs to take measures to protect its own interests.

But in an era when the U.S. government treats its bilateral relationships as investment portfolios, countries quickly learn to navigate both partnership and competition in the same relationship. At the same time, the U.S.-China trade war only strengthened Beijing’s resolve to rapidly advance its home industries. Consequently, not only does Germany need to find a balance between China and the U.S., but it also must cultivate its own industries as the country faces competition from two economic superpowers. Fostering the growth of advanced technologies captures the second part of Germany’s strategy.

During his tour in Silicon Valley, Altmaier repeated his call for more innovation space in Germany and reiterated the German government’s goal for the country to “remain a leading industrial country in digitalization.” Berlin already pledged €3 billion for AI innovation before 2025. In a recent drive to strengthen its car industry facing increasing global supply chain risks, Germany earmarked €1 billion to support domestic battery cell production. Of course, these figures pale in comparison to lofty spending pledges from central and local governments in China. Germany also has much to learn from the U.S. in order to create a productive AI ecosystem that is driven by exponential growth, increased accessibility, and AI integration. But these efforts are essential first steps to maintaining Germany’s long-term industrial competitiveness while patient diplomacy seeks to improve the conditions for trade and investment.

What Germany still needs is firm resolve for its course of action and support from partners who see value in its way of managing conflict and competition.

As Germany peruses its technology agenda, it must still do so against the same background of disruptive forces unleashed by the expanding U.S.-China conflict. By resisting temptation to boil bilateral relationships into a contentious theme and fostering a habit of working together with all parties, Berlin’s strategy should serve it well. What Germany still needs is firm resolve for its course of action and support from partners who see value in its way of managing conflict and competition.

The views expressed are those of the author(s) alone. They do not necessarily reflect the views of the American Institute for Contemporary German Studies.

Yixiang Xu

New Research Initiative Fellow

Yixiang Xu is the Fellow for the New Research Initiative at AICGS, working on the Institute’s China-Germany-U.S. triangular relationship initiative. He also researches international economic and trade issues. Previously, he worked at AICGS as a research assistant.

Mr. Xu received his MA in International Political Economy from The Josef Korbel School of International Studies at The University of Denver and his BA in Linguistics and Classics from The University of Pittsburgh.

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yxu@aicgs.org | 202-770-3262