Germany is assembling a comprehensive package of economic-security measures designed to shield its strategic industries from Chinese competition, with new tariffs on hybrid electric vehicles sitting at the center of the effort. Chancellor Friedrich Merz’s government is targeting cabinet approval by October 14, 2026, a timeline that reflects how urgently Berlin views the competitive threat from state-subsidized Chinese manufacturers.
The initiative goes well beyond car tariffs. German ministries have been evaluating vulnerabilities across multiple sectors, with proposals on the table that include mandatory joint ventures for certain investments, stricter investment screening, and expanded export controls.
The automotive pressure cooker
German automobile manufacturers, Volkswagen chief among them, are facing intensifying competitive pressure from Chinese firms that benefit from substantial state subsidies. German state-level politicians from both the CDU and SPD have called for EU-wide tariffs on Chinese hybrids, pointing to subsidies that allegedly account for roughly 60% of Chinese manufacturers’ global market share gains.
The European Union already imposed tariffs on Chinese battery electric vehicles in late 2024, but hybrid electric vehicles and plug-in hybrids have remained largely untouched. That gap is what Berlin now wants to close, and it plans to build coalition support within the EU to make it happen.
Over 50% of German companies support stronger EU trade measures against China. Meanwhile, 83% of industrial firms cite increased competition from China as a growing concern.
The investment paradox
Even as political rhetoric in Berlin has shifted decisively toward de-risking from China, German companies are doing the exact opposite with their checkbooks. German firms increased their investment in China by approximately €5.6 billion in the first half of 2026 compared to the prior year. At the same time, German investment flowing to the United States fell sharply.