Germany has been warned that a “China shock” to its trade economy is the biggest driver of its industrial slump, in a new report that urges Berlin to throw its weight behind stronger EU measures against Beijing.

Much soul-searching has been under way in Berlin over recent years, with the German government focusing on deregulation in an effort to kick-start a sputtering economy.

According to the report from influential think tank the Centre for European Reform, the “China shock is now the most important cause of Germany’s malaise” – even if “it is the one Berlin remains least willing to confront”.

The report’s authors, economists Sander Tordoir and Brad Setser, described the effect on Germany as Phantomschmerz, or phantom limb – “a pain felt where something vital has already been lost”.

“That missing limb is export demand, chopped off by China’s profound pressure on Germany’s industrial base,” they wrote.

The report found that Germany’s exports to China as a share of GDP have fallen by more than 40 per cent since the 2021 peak and that, since mid-2025, Germany has been buying more capital goods from China than vice versa – a remarkable turnaround for Europe’s industrial engine.