Supply Chain Resilience After the “China Shock”: What German SMEs Must Do Now
9 min min Read Time
37 percent of German industrial companies depend on Chinese intermediate goods – IT nearshoring from Eastern Europe offers a viable alternative. Global supply chain disruptions rose 38 percent in 2024. U.S. tariffs have pushed German exports to a four-year low. And 80 percent of companies anticipate sustained margin pressure. Firms that fail to actively restructure their supply chains risk existential threat.
The Key Takeaways
- 37% dependent: More than one-third of German industrial firms source critical intermediate goods from China. In 2022, the figure stood at 46% (ifo Institute, April 2024).
- Disruptions up +38%: Global supply chain disruptions rose 38% year-on-year in 2024. Eighty percent of companies reported at least one disruption (Resilinc, 2024).
- Critical raw materials: The EU imports 100% of its heavy rare earth elements from China; 98% of rare-earth magnets and 97% of magnesium also originate there (EU Council, 2024).
- 47% already diversifying: Nearly half of internationally active German companies have identified new or additional suppliers (DIHK, 2024).
- U.S. tariffs hit hard: German exports to the U.S. fell 20% in August 2025 – reaching a four-year low. Volkswagen warned of up to €5 billion in additional costs (Euronews, Bruegel).
Dependence in Numbers
In 2025, China remains Germany’s top trading partner once again, with trade volume totaling €251.8 billion (Destatis, February 2026). Dependence varies sharply by sector: 65% of companies in data processing rely on Chinese intermediate goods; 60% in electrical engineering; and 59% in the automotive sector (ifo Institute, April 2024).
The positive trend: dependence is declining. In 2022, 46% of German industrial firms reported reliance on Chinese intermediates; by 2024, that share had fallen to 37%. The automotive sector has responded most decisively – down 17 percentage points over two years. The sole exception: the chemical industry, where dependence rose by 5 percentage points.
Source: ifo Institute / EconPol Europe, April 2024
Critical Raw Materials: Where Dependence Becomes Existential
Intermediate goods can be diversified. Critical raw materials pose a far steeper challenge. The EU sources 100% of its heavy rare earth elements from China, 98% of rare-earth magnets, and 97% of magnesium (EU Council, CRMA). China controls 59% of global rare earth mining, 91% of refining, and 94% of permanent magnet production.
The EU’s Critical Raw Materials Act (CRMA) aims to counterbalance this: By 2030, the EU targets domestic extraction of 10%, processing of 40%, and recycling of 25% of its critical raw materials. No single third country should supply more than 65% of any given critical raw material. These goals are ambitious – and implementation will take time.
38% More Disruptions: The New Normal
Supply chain disruptions are no longer exceptional – they’re the status quo. Resilinc recorded a 38% year-on-year rise in global supply chain disruptions in 2024. Eighty percent of companies worldwide reported at least one disruption. Factory fires topped the list for the sixth consecutive year (2,299 alerts). Extreme weather events surged 119%; floods jumped 214%.
McKinsey confirms the pattern: Nine out of ten supply chain executives reported supply chain issues in 2024. Notably, strategy has shifted: Only 34% now rely on higher inventory buffers – a sharp drop from 59% in 2022. The pandemic-era “hoarding” approach is giving way to smarter responses: 60% of firms now have full visibility into Tier-1 suppliers – an increase of 10 percentage points over two years (McKinsey Supply Chain Risk Survey, 2024).
U.S. Tariffs: The Second Shock
Just as German firms reduce their China exposure, a second shock hits: U.S. tariffs. The EU-U.S. agreement signed in July 2025 imposes a baseline tariff of 15% on most EU goods. The impact is measurable: German exports to the U.S. plunged 20% in August 2025 – to a four-year low of €10.9 billion (Euronews, October 2025).
Volkswagen warned that tariffs could cost up to €5 billion in 2025 alone. Group profit collapsed by 58% in the first nine months. The VDMA forecast a 5% decline in mechanical engineering output. Two-thirds of machinery manufacturers expect revenue losses – many exceeding 10%. The Kiel Institute and Bruegel estimate the EU GDP impact at -0.3 to -0.8 percent.
47 percent of internationally active German companies have already secured new or additional suppliers for raw materials and products. Another 28 percent are still searching.DIHK Going International 2024, Special China Analysis
What SMEs Can Do – Concretely
Build transparency: Sixty percent of companies have Tier-1 visibility – but that’s insufficient. Without knowing where your suppliers’ intermediate goods originate, you’re operating blind in risk analysis. Digital supply chain platforms can map supply networks down to Tier-3.
Implement dual sourcing: Every critical component must have at least one alternative supplier. Forty-seven percent of German companies have already diversified (DIHK). Nearshoring to Eastern Europe (Hungary, Slovakia, Poland) or Turkey shortens lead times and lowers geopolitical risk.
Deploy digital early-warning systems: Tools like Resilinc, Everstream Analytics, or Riskmethods monitor global risk signals in real time – factory fires, extreme weather, political instability. A 48-hour head start lets you activate alternate routes before disruption reaches your production line.
Don’t pull everything out of China: Data reveals a countertrend: 22% of German firms plan to expand their China operations, versus only 19% planning reductions (DIHK). The choice isn’t binary. A “both-and” strategy makes sense: serve China as a market – but reduce dependency on it for critical intermediates and raw materials.
Nearshoring: Not a Silver Bullet
Volkswagen relocated Passat production to Bratislava; BMW shifted iX3 manufacturing from China to Hungary. Over 40 of the world’s 100 largest automotive suppliers now operate in Hungary. Nearshoring is a tangible trend – but not a panacea.
The countertrend: Four in ten German industrial firms are considering shifting production abroad – primarily due to energy costs (Bloomberg, August 2024). BASF is expanding capacity in both China and the U.S. Choosing nearshoring – or rejecting it – isn’t ideological. It’s a business decision. Shorter supply chains reduce risk – but not always cost.
Conclusion
German industry is moving – but not fast enough. 37% dependence on Chinese intermediates. 100% dependence on China for heavy rare earths. 38% more disruptions. And U.S. tariffs hitting simultaneously. The answer isn’t decoupling – it’s de-risking: Tier-3 transparency, dual sourcing for critical components, digital early-warning systems, and an honest audit of which dependencies threaten your business model. Companies that fail to clarify these issues within the next 12 months will face the next disruption unprepared.
Frequently Asked Questions
What does “de-risking” mean – and how does it differ from “decoupling”?
De-risking means deliberately reducing critical dependencies without severing trade relationships entirely. The EU consciously uses “de-risking,” not “decoupling.” Practically, it means continuing to serve China as a market – while building alternative sources for critical intermediates and raw materials.
Which sectors are most dependent on China?
According to the ifo Institute (2024), data processing (65%), electrical engineering (60%), and automotive (59%) are most exposed. The chemical industry is the only sector where dependence has increased over the past two years.
How can an SME build supply chain transparency?
Start by fully mapping all Tier-1 suppliers – including their locations and backup options. Digital platforms such as Resilinc, Everstream Analytics, or IntegrityNext automate this process and add real-time risk monitoring. McKinsey reports that 60% of companies now achieve Tier-1 transparency.
Is nearshoring to Eastern Europe worthwhile for SMEs?
Nearshoring cuts transport distances, lead times, and geopolitical risk. Hungary, Slovakia, and Poland have established themselves as automotive hubs. Costs, however, remain higher than in China. Nearshoring makes particular sense for time-critical or customer-proximate production – while high-volume manufacturing may remain more economical in Asia.
Which EU regulations directly affect supply chains?
The Critical Raw Materials Act (CRMA) sets targets for domestic extraction and recycling. The Corporate Sustainability Due Diligence Directive (CSDDD) mandates due diligence across supply chains. NIS2 applies directly to logistics IT infrastructure. Additionally, CSRD reporting requirements for Scope-3 emissions compel supply chain transparency.
Further Reading
- All articles on Logistics and Supply Chain at MyBusinessFuture
- Reboot Germany: Turnaround stories from German SMEs
More from the MBF Media Network
- Logistics and Supply Chain on cloudmagazin
- Logistics and Supply Chain on Digital Chiefs
- SecurityToday – Enterprise IT Security
Header Image Source: Pexels / Tom Fisk (px:3856433)
