Germany’s China Shock Will Push Voters Right

Key Points:

• The far-right AfD party is gaining significant support in Germany, especially in eastern states like Saxony-Anhalt and Mecklenburg-Vorpommern, with rising concerns that similar trends may spread to western industrial regions due to economic decline.
• Germany faces a "China Shock" as its exports to China have plummeted by over 40% since 2021, particularly impacting its automotive sector, which is losing market share to Chinese electric vehicle producers and leading to massive job cuts.
• Unlike the U.S. experience where import competition devastated manufacturing, Germany’s crisis stems from an export-driven shock as China moves up the value chain and competes directly with German industries in global markets.
• The decline in industrial jobs, especially in key sectors like automotive manufacturing, threatens to replicate the political polarization seen in the U.S., potentially boosting AfD support in western Germany’s industrial heartlands.
• German leaders face a dilemma between protecting domestic industries through trade barriers, risking Chinese retaliation, or maintaining free trade and risking further job losses, while alternatives like Spain’s strategy of attracting Chinese investment offer a potential model for adaptation.