Germany's Central Bank Chief Flags Industrial Risks From China

Source: Coindoo Original Title: Germany’s Central Bank Chief Flags Industrial Risks From China Original Link: Europe is approaching a moment where its long-standing approach to trade with China is being fundamentally questioned.

According to Joachim Nagel, the continent risks undermining its own economic resilience if it continues to rely on openness alone while ignoring the strategic consequences of that dependence. His argument is not about cutting ties with China, but about recognizing that economic interdependence now carries clear political and security risks.

Key Takeaways

• Europe is being urged to clearly define and defend strategic industries as economic ties with China become more politically and geopolitically sensitive.
• Supply-chain dependencies, highlighted by China’s rare-earth export restrictions, are increasingly viewed as strategic vulnerabilities rather than trade issues.
• Germany’s economic outlook is seen as stronger than public sentiment suggests, but success now hinges on execution, not policy promises.

China continues to play a central role in Europe’s economy, serving both as a major destination for exports and as a key supplier of affordable consumer goods. However, Nagel warned that this relationship becomes problematic when it extends into areas that underpin Europe’s industrial strength. He pointed to sectors such as car manufacturing as examples where state-backed competition and industrial policy can distort markets and gradually weaken Europe’s position if left unchecked.

Nagel stressed that Europe has been slow to define what it considers essential to protect. In his view, failing to establish firm boundaries leaves critical industries vulnerable to foreign policies that prioritize national advantage over fair competition. He argued that Europe must move beyond reactive measures and develop a clearer framework that identifies which sectors warrant active protection before irreversible damage is done.

Recent events have already exposed these risks. China’s decision to restrict exports of rare-earth magnets last year served as a wake-up call for European policymakers. These materials are indispensable for electric vehicles, renewable energy infrastructure, and defense manufacturing, making them strategically sensitive. The episode highlighted how quickly trade dependencies can be leveraged in an increasingly tense geopolitical environment.

Trade Tensions, Germany’s Economy, and the Question of Execution

Nagel also connected Europe’s industrial vulnerability to broader global trade instability. He referenced the recent tariff threats from the U.S. as another reminder that Europe cannot assume predictable trade relations, even with long-standing allies. While such tariffs disrupt global markets, Nagel argued that their economic impact often falls most heavily on consumers within the countries that impose them.

Despite these external pressures, Nagel pushed back against the narrative that Germany’s economy is performing far worse than its peers. He cautioned against what he sees as an overly negative public discourse, arguing that Germany’s economic fundamentals remain stronger than commonly portrayed. According to Nagel, critics frequently overlook the time it takes for structural reforms and investment programs to produce visible results.

He pointed to the government’s plans to significantly increase spending on infrastructure and defense as steps in the right direction, particularly when paired with efforts to cut bureaucracy and accelerate digitalization. However, Nagel emphasized that policy announcements alone will not be enough. The credibility of these initiatives will ultimately depend on whether they are implemented effectively and translated into measurable outcomes.

On the international trade front, Nagel described the European Parliament’s decision to delay ratification of a major trade agreement as a setback for Europe’s broader trade strategy. Nevertheless, he expressed confidence that the agreement will eventually move forward, adding that even provisional or partial implementation would represent meaningful progress in diversifying Europe’s trade relationships.

When asked about speculation surrounding the future leadership of the European Central Bank and the eventual succession of Christine Lagarde, Nagel declined to engage in personal ambition. He said the issue is not currently under discussion, while noting that, in principle, all members of the ECB’s Governing Council should be eligible when the time comes.