Germany woke up this week to the price of a 50-year bet.
German exports to China fell more than 12 percent in the first half of 2026. Imports from China rose 8.9 percent, reaching €91.8 billion. Germany's trade deficit with China widened to roughly €55 billion. As recently as 2021, China was Germany's second-largest export market. Today, it is ninth.
Call it what it is: the cost of denial.
For decades, Germany believed it had found the perfect economic partner. China had labor and a vast market that needed to industrialize. Germany had world-class manufacturing and engineering. Germany would sell, China would buy, both would prosper. That was only half the story.
Beijing wanted more than German exports. It wanted German capability. Nowhere is that clearer than Volkswagen. Germany's largest automaker did not simply sell cars in China. It built factories, trained workers, and transferred decades of manufacturing expertise. At its peak, roughly four in ten Volkswagens sold worldwide were built in China. Germany was paid in cash, China was paid in capability, and capability builds on itself.
The strategy even had an intellectual name, Wandel durch Handel, or "change through trade." The theory was that deeper trade ties would eventually liberalize China politically. Germany wasn't alone in this delusion. Washington made a similar bet when it welcomed China into the World Trade Organization. But Germany's bet was uniquely dangerous. Manufacturing was not simply one part of its economy. It was the foundation of German national power.
By 2015, Beijing made its ambitions explicit. "Made in China 2025" laid out a plan to dominate advanced manufacturing, robotics, EVs, and precision machinery, the very industries that made Germany an industrial power. And yet two years later, Volkswagen signed another joint venture and built more factories in China. This was not an oversight. It was one of Merkel's worst policy choices, in a career full of them. China didn't steal German manufacturing; Germany handed it over.
President Trump saw the strategic problem before much of Washington did. He broke with three decades of bipartisan consensus that treated China mainly as a business opportunity. Washington had spent decades avoiding the obvious question: why were we funding the country that wants to beat us? His answer was to put American reindustrialization back at the center of U.S. economic strategy because industrial capacity IS national power.
Germany learned the same lesson from Russia, and far too late. Berlin depended on cheap Russian gas to fuel its industry while convincing itself that commercial interdependence would promote geopolitical stability. Vladimir Putin's invasion of Ukraine destroyed that assumption overnight. Berlin eventually adopted "de-risking" as its China framework. The numbers this week show who's actually doing the de-risking, and it isn't Germany.
Picture a Chinese factory floor a decade from now: AI that designs the product, optimizes the line, corrects its own defects, and coordinates its own suppliers, with fewer human engineers needed at every stage. China is already the factory of the world. An AI layer on top of that base makes China's industrial output nearly impossible to compete with on cost, speed, or scale.
Enter AI Plus. Unveiled in 2024 and now written into China's next Five-Year Plan, it comes with targets, not slogans. Beijing has set a goal of 70 percent AI penetration across key sectors by 2027, rising to 90 percent by 2030. An eight-ministry initiative this year set out to deploy 1,000 industrial AI agents and 500 manufacturing scenarios, backed by government compute vouchers to help smaller factories. And China already runs more than 30,000 smart factories. AI Plus is Made in China 2025, and this time the factories can think for themselves.
This is where Germany becomes an American problem, not a German one. If American AI does not get embedded into German manufacturing first, Chinese AI will. A German industrial base running on Chinese AI does not stay neutral. It becomes an extension of Chinese industrial power sitting inside the Western alliance. Whoever writes the AI operating system for German industry decides which side that industry ultimately serves.
Right now, the West's answer to a state-directed rollout is trade show demos and a handful of corporate deals, not a plan. Washington and Berlin have no shared target or timeline, nothing that moves at the speed China is already moving. Hannover Messe produced a partnership between NVIDIA, Deutsche Telekom, Siemens, and SAP, and this kind of success needs to be scaled broadly and quickly. The United States and Germany need to build the future of industrial AI together: American AI running in German factories, American energy powering it at scale, and German manufacturers investing directly in America's reindustrialization.
This is not charity toward Germany, and it is not an argument for Germany to stop trading with China. It is American self-defense.
Germany spent 50 years believing trade would change China. Trade changed Germany instead. The first bill for that mistake has already arrived. The next one comes due in AI, and it will make this one look small. President Trump saw the problem before anyone else would say it out loud, and his fix is already working, but trade was the warm-up; AI is the real fight. If President Trump moves decisively now, American AI can become the foundation of German industry before Chinese AI does. The country that industrializes AI first will not just win markets. It will set the terms everyone else is forced to live by. America cannot afford to finish second.
Noosheen Hashemi is a Silicon Valley entrepreneur, former Oracle executive, and founder and CEO of January AI, using artificial intelligence to transform how people understand and manage their health.