Nathan Gardels is the editor-in-chief of Noema Magazine.
In the waning days of the Cold War, the major contentious issue was the reunification of Germany. Both East and West worried that restoring full nationhood to this industrial powerhouse that had brought Europe to ruin in the mid-20th century would be an historic mistake.
Margaret Thatcher openly warned that the reunified nation, even if entangled in European institutions, would not so much mean a Europeanized Germany as a “German Europe.” Francois Mitterrand didn’t trust France’s old enemy to restrain itself if made whole. The Soviets insisted that the only acceptable arrangements for reunification could never allow Germany to be a military threat again. One compelling reason the U.S. insisted on a reunited Germany in NATO was to constrain its ambitions as the most powerful player on the continent that might otherwise become a repeat offender.
Post-Cold War German leaders, harboring their own self-doubts, took those concerns deeply to heart. They not only embedded their nation in the European Union, but wove ties that bound them in all directions. They linked up closely with the “new Russia” for a steady supply of cheap energy and fashioned their economy as an export platform for what they manufactured to a rapidly modernizing China, while riding on the American coattails for security as an essentially pacifist nation.
By the late 1990s and early 2000s, Germany prospered as one of the most globalized and interdependent nations on the planet. It was a model of how to thrive in an increasingly integrated world, which everyone thought was the shape of the future to come.
Two decades later, that strength turns out to have been an unanticipated Achilles heel. The German curse today is that it became dependent on interdependence.
The foundations of peace and prosperity built on its global ties have been crumbling one by one, taking down the current governing coalition with it and menacing political stability going forward.
The invasion of Ukraine severed its pipeline of cheap fuel and hollow harmony with Russia. As widespread isolationist rumblings turn America inward and away from its Atlanticist commitments, Berlin is being forced to pony up for its own defense and that of its immediate neighborhood when the Russian bear is at the gate. And now, a perfect storm of China’s competitive technological advance and deglobalization threatens the chief export market for Germany’s core industry and the countless Mittelstand suppliers that rely on it.
In the nearly nine decades of its existence, Volkswagen, the iconic “people’s car” company launched in the Hitler era, has never closed a factory on its home territory. Now, squeezed by the rise of stiff competition within China with attractive domestic auto brands, inexpensive Chinese EV exports to European markets and the shift to climate-friendly electric vehicles, Volkswagen’s management has announced plans to close three plants employing tens of thousands of workers and cut wages by 10%.
China is far and away Volkswagen’s top export market, where it sells one in three of its cars worldwide. Last year, however, its sales there slumped by 64%, mainly because Chinese local competitors, including electric vehicle makers such as BYD, have gained ever greater market share as their cars become more attractive, technologically sophisticated and cheaper than European imports. Foreign brands as a whole only accounted for 37% of the Chinese market in the first eight months of 2024, down from 60% in 2020.
At the same time, China’s share of the EV market in Europe keeps growing, reaching 11% in 2024, as European companies struggle with adapting the new technology. This evolving dynamic led the EU this month to impose duties of 17% to 35% on Chinese brands of EVs, in addition to the 10% tariff already in place.
German automakers have argued vociferously against this move, fearing it will invite Chinese retaliation in a market already weakening for their exports. As one analyst has noted: “The Chinese are both the biggest threat and the biggest customer” for car manufacturers and their suppliers in Europe.
The VW Bug Is A Feature
It is hard to overestimate what an earthquake this is to both the material well-being and psyche of the volk. Reliance upon the Chinese market by German automakers has been the lifeblood that, in recent decades, has sustained its manufacturing base as a core feature of the country’s prospering social market system. As Gerhard Schroeder, who was known as the “Auto Kanzler” (“auto chancellor”) when he was in power from 1998-2005, said at a Berggruen Institute town hall in Berlin in 2011: “There can be no middle class or welfare state without manufacturing.” In 2023, the auto industry employed 780,000 workers.
Germany is caught in the triple vice of deglobalization, where the extent of integration between the West and China is itself the territory of geopolitical contestation; fiercely competitive markets where rising protectionism has yet to close the door; and the disruptive energy transition in an industry its manufacturing prowess once so readily dominated.
It is a great historical irony that an admonished nation which rebuilt itself from the self-ruin of war on the basis of the peaceful links of interdependence with others now finds itself a victim of its success. Let’s hope Germany’s fate is not a premonition of a world headed back to the conditions of the 20th century its post-Cold War leadership strived to repair and never repeat.
