Is Globalization Ending? Germany Caught Between the U.S. and China
Mar 19th 2026
Germany’s export-led model is under pressure as U.S. and Chinese industrial policies and geopolitical rivalry push countries to onshore production, form economic blocs and prompt companies to friendshore, leaving German industry looking for new markets and strategic responses.
- The U.S. and China are reshaping global trade by prioritizing domestic industry and strategic supply chains, driving bloc formation.
- German exporters, especially carmakers like Volkswagen, are seeing sharp sales and profit declines, with VW reporting a 64 percent drop in third quarter profit.
- U.S. policy, including the Inflation Reduction Act, is accelerating domestic EV, battery and chip production and pulling investment into America.
- China is expanding subsidized production and global infrastructure ties while flooding markets with low-cost goods, prompting EU tariffs on Chinese electric vehicles.
- Companies are pursuing friendshoring and de-risking to reduce dependence on China, which raises costs and fragments global supply chains.
- Emerging markets, notably Latin America, are being courted for raw materials and production as firms and states seek alternatives to China.
- The IMF warns that bloc formation and growing protectionism could reduce global economic output by about 2 to 3 percent per year.
- Germany’s policy options include subsidizing strategic sectors, diversifying export markets, and defending multilateral trade rules through allies and the WTO.