The German mechanical engineering industry is under pressure. A study shows that up to 20 percent of jobs are at risk. The reasons are rising trade barriers and increasingly aggressive competition from China. Over a million employees in Germany are feeling the effects, while market shares abroad are faltering.(handelsblatt: 26.08.25)
Raising trade barriers and competition from China
More than 120 top managers from international corporations participated in the survey. Nine out of ten mechanical engineering companies expect losses in US business. Three-quarters fear market share losses in Europe. Export-oriented mechanical engineering companies are particularly suffering from tariffs that make products more expensive and block important sales markets.
Study director Ralf Sauter warns: “The tariff deal hits the mechanical engineering industry hard. It increases pressure on the cost base and costs jobs.” Even more dangerous, however, is competition from China: “The real challenge lies in the growing competition from China.”
Restructuring in Mechanical Engineering and Job Cuts
The Wiesbaden-based Kion Group reacted early. “We have expanded our production in the USA and significantly regionalized it – locally by locally,” explains a spokesperson. Nevertheless, Asian manufacturers are gaining market share, especially in low-cost entry-level solutions.
Many companies are responding by relocating to India, China, North America, or Eastern Europe. Experts expect that up to 20 percent of mechanical engineering jobs in Germany will disappear in the next three years. The Association of German Mechanical and Plant Engineering (VDMA) is already reporting a decline of two percent. VDMA Chief Economist Johannes Gernandt warns: “Germany is losing competitiveness as a business location. We have a broad cost problem – in labor, taxes, energy, and bureaucracy.”
Market shares in Europe under pressure
The study shows that 73 percent of executives expect aggressive expansion by Chinese manufacturers in Europe. This puts German suppliers’ market shares at risk. Their technological lead is shrinking rapidly. “Products from Chinese competitors are now barely inferior to ours in terms of technology and quality,” explains Sauter.
To avoid being squeezed out, German companies are trying to integrate their components into Chinese supply chains. Four out of five companies are pursuing this strategy. But this dynamic is increasing competition from China, while competition is becoming tougher for everyone.
Research, Sustainability, and Trade Barriers
Despite everything, Germany remains a central research and innovation center. 84 percent of development spending is concentrated on the domestic market. South America, Africa, and Australia, in contrast, play a negligible role.
But this focus has consequences. Sustainability initiatives without clear economic benefits are being dropped. “Companies are concentrating on their core portfolios and abandoning projects that don’t provide direct added value,” emphasizes Sauter. At the same time, trade barriers are blocking investments that would be crucial for the climate transition.
Digitalization as a Last Chance
A glimmer of hope lies in digitalization. Nine out of ten companies want to use artificial intelligence, and budgets are increasing by an average of 36 percent. Nevertheless, the level remains low. “The AI promises must not remain mere lip service,” warns Sauter. Collaborations with Nvidia and Accenture are showing initial progress, but the full potential has not been realized.
In the short term, cost reductions, relocations, and job cuts dominate. In the long term, innovation is what counts. Gernandt calls for reforms in energy, taxes, and bureaucracy. Only with a strong research and production base can mechanical engineering secure its market share and hold its own against competition from China.