How is the Trade War Affecting the German “Mittelstand”?

The US-China trade war has escalated at a time when foreign businesses already face multiple challenges in China – from sustained cost hikes, to a burdensome “Great Firewall” and ever-tougher environmental regulations. So how does this impact the German “Mittelstand”?  

This was the question we sought to discuss with clients at our annual cornerstone event “Fiducia China Mittelstandstag” at the BMW World in Munich, Germany. Under the theme of “Open Doors & Firewalls” we analysed emerging opportunities and risks for China-exposed businesses.

Below are some of the impressions shared by our outstanding guest speakers and “Mittelstand” participants.

Is the US-China trade war already affecting the “Mittelstand”?

Bigger German players who export from their Chinese production sites to the USA, and  vice versa, are already hit by rising tariffs. But most mid-sized German companies with factories in China produce “in China for China” or “in China for Asia”, and are less affected. Perhaps for this reason, participants generally expressed a “wait and see” approach towards the trade war rather than an urgency to mitigate risks now.

Will mid-sized companies move their production or sourcing out of China?

While environmental restrictions and trade tensions drive companies to weigh up alternatives, the truth is that rising costs have already been pushing players in garments, footwear, and other low-tech categories to cheaper Asian countries for years. Participants pointed out that the production that remains in China has stayed there for a reason: China’s unparalleled supply chain ecosystems mean that current tariff and cost pressures are not yet high enough to justify a relocation.

Is China’s door closing for German companies?

Despite new setbacks, the outlook expressed by participants was overwhelmingly positive. They welcome recent government efforts to cut taxes and liberalise key sectors. Those selling to China are more excited about the market’s maturity than they are worried about a moderate slowdown. And many of the companies producing and sourcing in China have by now built up such solid organisations, market experience, and supplier relations that they feel well-equipped to weather current challenges.

>> Download our China Focus publication: “Is China’s Door Closing?”

The “Fiducia Mittelstandstag 2018” in the words of participants

Get in touch with us to know more about the content of the event – and to make sure you’re on next year’s guest list!