Germany Calls for 'Plaza Accord' Talks on China's Yuan as Berlin Hardens Its Trade Stance
In a striking signal of shifting geopolitical and economic winds, German Chancellor Friedrich Merz has called for international negotiations modelled on the historic 1985 Plaza Accord to address what he describes as a significantly undervalued Chinese yuan. Speaking in Brussels following a European Council summit, Merz argued that China's currency policies, combined with its heavy use of industrial subsidies, are distorting global trade in ways that European manufacturers can no longer absorb. The statement marks one of the most direct confrontations with Beijing from a German leader in recent memory — and it could reshape the EU's approach to China for years to come.
What Did Merz Actually Say?
Merz made headlines by claiming the Chinese yuan is undervalued by approximately 30 percent — a figure significantly higher than the International Monetary Fund's own estimate of "about 16 percent." He framed China's trade practices as a dual problem: first, that Beijing is "flooding markets" through the deployment of "high subsidies" to domestic industries; and second, that the yuan's lack of free convertibility gives Chinese exporters a structural pricing advantage that market forces alone cannot correct.
The German Chancellor explicitly invoked the spirit of the Plaza Accord, the landmark 1985 agreement in which the United States, Japan, West Germany, France, and the United Kingdom coordinated to depreciate the overvalued US dollar against the Japanese yen and German mark. Merz's suggestion is that a similar multilateral framework may be necessary today — this time to address the yuan's undervaluation and rebalance global trade flows distorted by Chinese state intervention.
Why This Represents a Major Shift for Germany
For decades, Germany pursued a policy of deep economic engagement with China built on the assumption that trade interdependence would gradually encourage political liberalisation in Beijing and protect German export interests. Major German automakers, chemical companies, and industrial manufacturers became some of the most exposed Western businesses to the Chinese market. That approach — often described as Wandel durch Handel, or "change through trade" — has come under intense scrutiny following Russia's invasion of Ukraine, which exposed the risks of strategic economic dependence on authoritarian states.
Merz's comments signal that Berlin is now prepared to align more closely with the European Commission's increasingly assertive posture toward China, which in recent years has seen the EU launch anti-subsidy investigations into Chinese electric vehicles, solar panels, and other sectors. By publicly endorsing the view that the yuan is substantially undervalued and calling for coordinated international action, Merz is effectively endorsing the framing that China's trade surplus is at least partly a product of policy choices rather than genuine comparative advantage.
The Plaza Accord Model: Could It Work With China?
The original Plaza Accord succeeded because all five signatories were liberal democracies with convertible currencies and open capital accounts — conditions that made coordinated intervention both politically feasible and technically straightforward. China presents a fundamentally different challenge. The yuan is not freely convertible, China's capital account remains tightly controlled, and Beijing has historically resisted external pressure on its exchange rate as an infringement on sovereignty.
Economists are divided on whether a Plaza Accord-style arrangement could be replicated. Some argue that China's growing interest in yuan internationalisation — expanding its use in global trade and finance — could provide a lever for negotiation, since greater convertibility would require the kind of monetary credibility that a coordinated revaluation might actually help establish. Others are more sceptical, pointing out that China's leadership views currency policy as a core domestic prerogative and that the geopolitical context of 2025 is far more adversarial than the cooperative atmosphere of 1985.
The EU's Broader China Trade Debate
Merz's intervention comes as the European Union is navigating a complex balancing act on China. The bloc has moved to impose tariffs on Chinese electric vehicles following an anti-subsidy investigation, but member states remain divided on how aggressively to push back against Chinese trade practices. Countries with large export-oriented economies — Germany chief among them — have historically pushed back against measures that could provoke retaliatory tariffs from Beijing. The fact that Merz is now adopting a tougher line publicly suggests that domestic political calculations within Germany have shifted considerably.
Germany's industrial base is under pressure from multiple directions: cheap Chinese goods are increasingly competitive in European markets, Chinese electric vehicles threaten the country's automotive sector, and the broader global trade environment has become more fragmented. For German policymakers, the calculus of accommodation toward Beijing is becoming harder to justify to domestic constituencies.
What Happens Next?
Whether Merz's call for Plaza Accord-style talks gains traction will depend heavily on US engagement. Washington under successive administrations has also pushed back against Chinese currency and trade practices, but a formal multilateral mechanism would require buy-in from the United States, the EU, Japan, and potentially other major economies. The chances of Beijing agreeing to participate in any such forum — let alone accepting commitments on yuan appreciation — remain uncertain at best.
What is clear is that the era of German and European strategic ambiguity toward China is drawing to a close. Merz's statement, coming directly after a major European Council summit, was not an off-the-cuff remark — it was a deliberate signal that Berlin is prepared to take a harder line, both in its bilateral dealings with Beijing and within the EU's collective China strategy.
Key Takeaways
- German Chancellor Merz claims the yuan is undervalued by 30%, well above the IMF's estimate of 16%, and has called for Plaza Accord-style negotiations to address the imbalance.
- He argues China's combination of industrial subsidies and a non-convertible currency constitutes an unfair structural advantage in global trade.
- The statement marks a significant departure from Germany's historically accommodating approach to China and aligns Berlin more closely with the EU Commission's assertive trade stance.
- A modern Plaza Accord faces major obstacles, particularly China's resistance to external pressure on exchange rate policy and its tightly controlled capital account.
- The shift reflects growing pressure on Germany's industrial economy from Chinese competition and a broader rethink of strategic economic dependencies in Europe.
As global trade tensions continue to reshape alliances and economic strategies, Germany's pivot on China trade policy could prove to be one of the defining moments of this decade's geoeconomic landscape. Whether it leads to meaningful multilateral action — or simply hardens an already widening divide between the West and Beijing — remains to be seen.