Chancellor Scholz turns to India as Germany looks to diversify beyond China

German Chancellor Olaf Scholz is leading a high-level delegation to New Delhi this week. The three-day meeting is aimed to strengthen economic ties with India as Germany seeks to reduce its reliance on China. While India may not replace China as the primary trade partner, it is increasingly viewed as a crucial alternative for Germany’s economic diversification strategy, according to media reports. The visit includes key cabinet members such as the foreign and defence ministers.

 

Scholz visited India twice in 2023- bilateral state visit in February and the G20 Summit in September. Within the European Union (EU), Germany is India’s largest trading partner. According to a report by the South China Morning Post, India and Germany’s bilateral trade was valued at $26 billion for the financial year that ended on March 31, 2024. Additionally, there are around 2,000 German companies in India.

 

The meeting between India and Germany comes at a time amid ongoing trade disputes between the European Union and China. In June 2024, the EU imposed tariffs of up to 38.1 per cent on Chinese electric vehicles, alleging that Chinese manufacturers benefit from substantial state subsidies, leading to market distortion. In response, China announced provisional tariffs ranging from 30.6 per cent to 39 per cent on European brandies, including well-known brands such as Remy Martin, Martell, and Hennessey.

 

The EU has also initiated an anti-dumping investigation into Chinese plywood imports, suspecting that much of the inexpensive plywood originates from Russia, whose wood imports were banned by the EU following its invasion of Ukraine. Then, China commenced anti-subsidy investigations into EU dairy products, targeting companies from the Netherlands, France, and Italy.

 

Germany, which was heavily reliant on Russian gas before the 2022 Ukraine conflict, is now determined to decrease its economic dependence on Beijing.

 

“India, the most populous country in the world, is a key partner of the German economy in the Indo-Pacific and plays a key role in the diversification of the German economy,” said Economy Minister Robert Habeck, during the visit.

 

According to Volker Treier, head of foreign trade at the German Chamber of Commerce (DIHK), while German investment in India stood at around 25 billion euros by 2022, about 20 per cent of its investment in China, this share could rise to 40 per cent by the end of the decade.

 

“China will not disappear, but India will become more important for German companies,” Treier said, as reported by Reuters. He said India is the key to making Germany’s de-risking strategy away from China successful, given the size and dynamism of the Indian market.

 

On July 15, 2024, India and Germany also held Foreign Office Consultations in New Delhi, co-chaired by Foreign Secretary Vikram Misri and State Secretary of the German Federal Foreign Office Thomas Bagger. They reviewed their multi-faceted partnership and agreed to deepen cooperation in areas such as trade, investment, science and technology, defence, development, and the green economy.