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Nowhere is the new China shock reverberating globally “more consequential than in Germany,” Sander Tordoir and Brad Setser argued in a Center for European Reform report in May, but it is a problem of Berlin’s own making. 

John Springford, a fellow at the Centre for European Reform, has estimated that by mid-2022 Brexit had shaved five per cent off the UK’s GDP and reduced over-all trade by ten to fifteen per cent. The hit to trade would be especially painful for Switzerland, which has an export-dependent economy.  
“You’re competing with other European countries to bring in labor,” Springford said. “That’s quite difficult. Migrants respond to those kind of incentives.” Nearly three-quarters of new doctors in Switzerland were trained outside the country.

“China Shock 2.0: the cost of Germany’s complacency” is the title of a new report by Sander Tordoir and Brad Setser for the Centre for European Reform. They said Germany was in the eye of the storm. Its core industries are being squeezed out of the Chinese market, third countries, and its own home market, all at the same time.“Much of the demand generated by Germany’s fiscal expansion could leak straight into Chinese imports and throttle Germany’s recovery,” they said.

A paper by the Centre for European Reform argued that Germany faces a “China shock 2.0” as Chinese mass production and import substitution pressure German firms in China, Europe, and third markets. It cited China’s export volumes rising over 40 percent since the pandemic, a manufacturing surplus of about $2 trillion, and potential risks to 400,000-plus German jobs tied to exports to China. 

“French diplomats have put China’s imbalanced growth model at the top of the agenda and called for the EU to more strongly defend its home market,” economists at the Centre for European Reform wrote in a report released last month. “Germany remains hesitant, even as China has already eaten much of German industry’s lunch and is preparing to start on dinner.”

This Centre for European Reform paper, a campaign manual for trade warriors, has also got a lot of attention.

According to a report in late May by the London-based think tank Centre for European Reform, a European 301-type instrument would allow Brussels to counter distortions outside traditional trade defences, such as the yuan’s undervaluation, and flexibly target vulnerable sectors, including cars, chemicals and clean energy.

The question that Germany now faces is whether it is willing to join forces with France and other countries, and the Commission, “to defend the European home market from the flood of Chinese goods that is coming our way,” said Sander Tordoir, chief economist at the Centre for European Reform.