"Germany is Looking for New Partners"

Germany is accelerating a strategic economic pivot as deteriorating relations with the United States and persistent tariff pressure force Europe’s largest economy to diversify partners and supply chains.

Speaking at the Handelsblatt Energy Summit on Tuesday, German Economy Minister Katherina Reiche said “the world has become more uncertain, and alliances that we have trusted and relied on are beginning to crumble,” arguing that Berlin must deepen cooperation with existing partners while “above all seeking new partners.” She singled out South America, India, the Middle East, Canada, Australia, and Asian economies including Malaysia as priority markets.

The shift comes as U.S. President Donald Trump’s tariff policy reshapes Trans-Atlantic trade flows. Reiche said Germany’s economy now expects two years of growth driven largely by debt-funded investments in defense and infrastructure, but warned that the pace of about “1%, 1.5%” of gross domestic product (GDP) “is not sustainable.”

A person familiar with government planning said Berlin is expected to lower its 2026 growth forecast to 1.0% from 1.3%, with 2027 growth seen at 1.3%.

Capital Follows Supply Chains

Corporate behavior is already adjusting. Investments by German companies in China rose to more than 7 billion euros ($8 billion) between January and November 2025, up 55.5% from about 4.5 billion euros in both 2024 and 2023, according to previously unpublished data compiled by the IW German Economic Institute using Bundesbank figures.

The 2025 total also exceeds the 6 billion euro annual average recorded between 2010 and 2024. Reuters reported last week that German firms nearly halved U.S. investments in the first year of Trump’s second term, underscoring a reallocation of capital toward Asia.

Juergen Matthes, head of international economic policy at IW, said German companies are expanding in China “at an accelerated pace,” citing efforts to strengthen local supply chains. He added that concerns “about geopolitical conflicts” are pushing firms to localize production so China operations can run independently if major trade disruptions emerge.

China reclaimed its position as Germany’s top trading partner last year after briefly being overtaken by the United States in 2024, driven by rising imports from the world’s second-largest economy.

Major industrial players remain exposed to Chinese demand, including BASF, Volkswagen, Infineon, and Mercedes-Benz. Volkswagen said both China and the U.S. are of “great strategic importance,” with investments pursued independently under local strategies. Europe’s largest automaker added that technologies developed in China are now deployed more widely across Southeast Asia, the Middle East, South America, and Africa.

Supplier ebm-papst said it invested 30 million euros in China last year, more than one-fifth of its total capital spending, calling local production an “important anchor of stability” amid tariffs and geopolitical tensions, while also planning U.S. expansion this year.

“We Must Become Sovereign”

EU’s Political leaders are reinforcing the economic message with strategic language. On Jan. 22, Chancellor Friedrich Merz warned: “A world in which only power counts is a dangerous place,” implying Germany’s 20th-century history during the Second World War.

In November 2025, Merz sharpened the case for autonomy and becoming sovereign, urging Germany and France to stand together.

We can no longer rely on America to defend us, China to supply us with raw materials, and Russia to want peace.

Chancellor of Germany Friedrich Merz

Reiche’s call for new partnerships sits alongside a broader European rebalancing. Britain heads to China this week seeking business deals from cars to pharmaceuticals, the EU is nearing an agreement with South America, and Canada is expanding trade talks with China and India.

Amid such reshuffles, German leaders are now framing economic diversification as strategic necessity. On Jan. 22, Chancellor Friedrich Merz emphasized that the world was changing “at an unprecedented pace,” adding that “a world of great power rivalry is becoming the new reality”, describing this reality as the main challenge facing Germany and Europe.

The remarks reinforce Economy Minister Katherina Reiche’s push for new partners as Berlin navigates tariffs, weak growth, and a shifting global order. For Berlin, the policy line remains a balance between hardening its stance toward Beijing on trade and security while preserving ties with its top trading partner, an approach now being stress tested by tariffs, slowing growth, and a reordering of global alliances.