China Revaluation Boosts Germany’s Trade Surplus to €100bn

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The research, commissioned by the German Ministry of Economics, calculates that a 5% revaluation of the yuan against the euro—within the bounds of China’s managed float system—would boost German exports to China by €30 billion annually while reducing import costs by €15 billion. The Kiel Institute’s findings contrast with earlier projections from the European Central Bank, which in its Euro Area Trade and Exchange Rate Dynamics report (February 2025) estimated a 10% yuan revaluation would lift the EU’s trade surplus with China by only €60 billion over three years.

The Kiel study’s higher estimate stems from its focus on Germany’s bilateral trade with China, which accounts for 40% of the EU’s total surplus with the country. It also incorporates updated tariff data from 2026, including China’s 15% tariff on German electric vehicles—a move that has already cut German auto exports to China by 12% year-over-year, according to data from the German Association of the Automotive Industry (VDA). The ECB’s 2025 model, by contrast, used 2024 trade flows and did not factor in China’s 2026 industrial policy shifts, such as the Made in China 2025 follow-up plan announced in March 2026, which prioritizes domestic production in key sectors like EVs and solar panels.

Why the gap matters

The Kiel Institute’s methodology diverges from the ECB’s in two key ways. First, it models the yuan’s revaluation as a gradual adjustment (2–3% annually over three years) rather than a one-time shock, aligning with China’s historical approach to currency management. Second, it accounts for the composition of Germany’s trade surplus—where high-value machinery and chemicals exports would benefit disproportionately from a weaker yuan, while German imports of Chinese electronics and steel would see cost reductions. “The ECB’s model treats trade as a static flow, but in reality, a revaluation would trigger structural shifts in supply chains,” said Dr. Sebastian Dullien, the study’s lead author and a senior economist at Kiel. “For example, German chemical firms like BASF could see their export competitiveness improve by 8–10% in China, while Chinese steel imports would become 5–7% cheaper for German automakers.”

Dullien’s analysis builds on earlier work by the Kiel Institute, including a 2024 paper that projected a 3% yuan revaluation could add €20 billion to Germany’s trade surplus within two years. However, the 2026 study introduces new variables, such as the impact of China’s dual circulation strategy, which has led to increased domestic content requirements in Chinese manufacturing. “The ECB’s estimate doesn’t capture how China’s push for self-sufficiency could accelerate if the yuan strengthens,” Dullien noted. “A revaluation might force German firms to localize more production in China to offset higher costs.”

The Kiel report also highlights how Germany’s trade surplus with China has evolved since the EU’s 2021 Strategic Outlook on China, which warned of growing imbalances. In 2025, Germany’s surplus with China reached €220 billion, up from €180 billion in 2021, but the Kiel study suggests this figure could shrink to €120 billion by 2028 without a yuan adjustment. “The current surplus is not sustainable in the long term,” said Dullien. “It’s built on a weak yuan, and if China allows the currency to appreciate, Germany’s exporters will need to adapt or face declining market share.”

How China’s currency policy plays out

China’s State Administration of Foreign Exchange (SAFE) has signaled no immediate plans to adjust the yuan’s reference rate, but the Kiel report notes that a gradual revaluation—even as modest as 2–3% annually—could align with Beijing’s stated goal of reducing reliance on export-led growth. In its 2025 annual report, SAFE reiterated that the yuan’s exchange rate is determined by market supply and demand, with central bank intervention limited to preventing excessive volatility. However, the report also acknowledged that China’s foreign exchange reserves—officially valued at $3.2 trillion in March 2026—could support a controlled revaluation without triggering capital outflows.

“A structured revaluation would benefit both Germany and China,” said Dullien. “For Germany, it’s about stabilizing trade flows. For China, it’s about diversifying its economy away from real estate and manufacturing.” The Kiel study cites China’s 14th Five-Year Plan (2021–2025), which emphasized reducing export dependency, as a potential catalyst for currency adjustments. However, it warns that any revaluation must be coordinated with fiscal and monetary policy to avoid disrupting China’s debt-laden property sector.

Market analysts have mixed views on the likelihood of a yuan revaluation. Goldman Sachs, in a June 2026 report, suggested that China could allow the yuan to strengthen by 5% over the next two years if domestic demand picks up and capital controls remain tight. However, JPMorgan Chase economists, in a May 2026 note, argued that China’s focus on stabilizing growth—rather than currency appreciation—would limit any significant adjustments. “The PBOC [People’s Bank of China] is more concerned with preventing a sharp yuan decline than encouraging an appreciation,” said JPMorgan’s chief China economist, Haibin Zhu, in an interview with Financial Times.

China’s currency policy is further complicated by its trade tensions with the U.S. In May 2026, the U.S. Treasury Department labeled China a currency manipulator for the first time since 2019, citing persistent intervention in foreign exchange markets. The move followed a report by the U.S. International Trade Commission (USITC) that accused China of suppressing the yuan’s value to gain an unfair trade advantage. While the U.S. has not imposed tariffs in response, the Kiel study warns that a yuan revaluation could become a bargaining chip in U.S.-China trade negotiations.

What’s next for German-Chinese trade

The German government has not yet responded to the Kiel findings, but officials at the Ministry of Economics told reporters this week they are monitoring China’s currency movements closely. “We’re not advocating for a specific rate,” a ministry spokesperson said. “But if China were to allow a gradual, market-driven adjustment, it would create a more level playing field for European exporters.” The ministry’s stance reflects broader EU divisions: while Germany has historically favored engagement with China, France and Italy have pushed for stricter trade barriers, including higher tariffs on Chinese steel and solar panels.

The Kiel report also warns that a yuan revaluation could trigger retaliation from China on German luxury goods, which already face a 20% tariff. “The risk of tit-for-tat measures is real,” Dullien said. “Germany would need to prepare for potential countermeasures, especially in sectors like machinery and chemicals.” The study cites China’s 2021 tariff hikes on German auto parts—a response to EU criticism of Chinese industrial subsidies—as a precedent for how Beijing might react to a currency adjustment.

German exporters are already feeling the pressure. In a June 2026 survey by the Federation of German Industries (BDI), 68% of companies reported that China’s trade barriers—including tariffs, local content requirements, and non-tariff measures—had negatively impacted their business. “A yuan revaluation alone won’t solve these structural issues,” said Dieter Kempf, president of the BDI, in a statement. “Germany needs a comprehensive strategy to address China’s market access barriers.”

The Kiel study suggests that Germany could mitigate risks by diversifying its supply chains and increasing investments in third countries, such as Vietnam and India, where production costs are lower than in China. However, it acknowledges that such a shift would take years and could expose firms to new geopolitical risks. “The trade-off between China and alternative markets is not straightforward,” Dullien said. “Germany cannot afford to decouple entirely, but it also cannot rely solely on China.”

The bigger picture: Europe’s trade strategy

The Kiel report arrives as the EU prepares to finalize its new trade pact with China, expected by late 2026. Negotiations have stalled over disputes about subsidies, market access, and intellectual property rights. The EU’s Strategic Autonomy agenda, announced in March 2026, aims to reduce dependence on Chinese imports in critical sectors like semiconductors and batteries, but it also seeks to avoid a full-scale trade war.

A fairer yuan could ease tensions over subsidies, but Brussels remains divided: France and Italy have pushed for stronger protectionist measures, while Germany continues to advocate for engagement. The study’s €100 billion figure underscores the stakes—equivalent to nearly 2% of Germany’s GDP—but also highlights the fragility of trade balances in a geopolitically charged environment. “The EU’s approach to China must be pragmatic,” said Pascal Lamy, former EU Trade Commissioner and a senior advisor to the Kiel Institute. “A yuan revaluation could be a win-win, but only if it’s part of a broader agreement that addresses structural issues like forced technology transfers and state aid.”

Lamy’s comments reflect growing concerns in the EU about China’s economic statecraft. In a May 2026 speech, European Commission President Ursula von der Leyen warned that China’s use of subsidies and industrial policies was distorting global markets. “We need to be clear-eyed about the challenges,” she said. “But we also need to find ways to cooperate where our interests align.”

The Kiel study’s findings come as Germany faces pressure from its domestic industry to take a tougher stance on China. In a June 2026 letter to Economy Minister Robert Habeck, the BDI called for the EU to impose countervailing duties on Chinese steel and solar products, citing unfair subsidies. Habeck, who has been cautious about escalating trade tensions, responded that Germany would prioritize dialogue with China but would not rule out “targeted measures” if necessary.

The study also highlights the role of the yuan in global trade settlements. As of 2026, China accounts for 15% of global trade, and the yuan’s share in international transactions has risen to 2.7%, up from 1.5% in 2020, according to SWIFT data. A stronger yuan could accelerate this trend, reducing the dollar’s dominance in trade finance. “The yuan’s role in global trade is growing, but it’s still constrained by capital controls,” said Dullien. “A revaluation could make it more attractive for multinational firms to use the yuan in settlements, further reducing reliance on the dollar.”

However, the study warns that a yuan revaluation could also lead to higher costs for German importers of Chinese goods, particularly in energy-intensive sectors like chemicals and steel. “German firms would need to pass on some of these costs to consumers or absorb them, which could squeeze margins,” said Dullien. “This is why a gradual adjustment is preferable to a sudden shift.”

Key figures from the Kiel study (June 2026)

• Trade surplus impact: €100 billion for Germany by 2028 (Kiel) vs. €60 billion for the EU by 2027 (ECB 2025).
• Export boost: €30 billion annual increase in German goods shipped to China.
• Import savings: €15 billion reduction in German costs for Chinese machinery and electronics.
• Tariff impact: China’s 15% EV tariff has already cut German auto exports by 12% YoY (VDA data).
• Yuan revaluation threshold: Kiel models a 5% adjustment as optimal; ECB’s 2025 model used 10%.
• German trade surplus with China: €220 billion in 2025 (projected to shrink to €120 billion by 2028 without adjustment).
• German exports to China: Machinery (35%), chemicals (20%), vehicles (15%), electronics (10%) as of 2025.
• Chinese imports to Germany: Electronics (40%), machinery (25%), textiles (10%) as of 2025.
• Yuan’s share in global trade settlements: 2.7% (SWIFT, 2026) vs. 1.5% (2020).
• China’s foreign exchange reserves: $3.2 trillion (SAFE, March 2026).

Sources and references

• Kiel Institute for the World Economy, Trade Effects of a Yuan Revaluation (June 14, 2026).
• European Central Bank, Euro Area Trade and Exchange Rate Dynamics (February 2025).
• German Ministry of Economics press briefing (June 19, 2026).
• State Administration of Foreign Exchange (SAFE) annual report (2025).
• German Association of the Automotive Industry (VDA) trade data (June 2026).
• Federation of German Industries (BDI) survey (June 2026).
• Goldman Sachs, China’s Currency Outlook (June 2026).
• JPMorgan Chase, China Economic Outlook (May 2026).
• U.S. Treasury Department, Currency Manipulation Report (May 2026).
• European Commission, Strategic Autonomy Agenda (March 2026).
• SWIFT, Global Payments Trends (2026).
• Ursula von der Leyen, Speech on EU-China Relations (May 2026).
• Robert Habeck, German Economy Minister, Response to BDI Letter (June 2026).

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