Mercedes-Benz CEO says Cutting Ties with China is "Unthinkable"

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As the Neil Sedaka classic has it, "Breakin' up is hard to do." Ola Källenius would like to add that it is also financially catastrophic if the one you're calling it quits with is your largest overseas trading partner.

Despite much of Europe reevaluating its relationship with China, the Mercedes-Benz CEO told the Financial Times that cutting ties with the Middle Kingdom would be "unthinkable for almost all of German industry."

Friend or Foe

Källenius' statement might sound extreme but it's perhaps understandable when you consider that China is the second-largest economy in the world right behind the US. Plus, it's Mercedes' largest market, responsible for 37% of the carmaker's global sales. So Källenius knows just how important China is to his bottom line, and those of his fellow German executives as the EU's biggest trading partner.

But China's relationship with the US and its major allies isn't getting any better, making the unthinkable seem nearly unavoidable. Beijing's ties with Vladimir Putin, US sanctions on Chinese companies, the saber-rattling toward Taiwan, and the country's aggressive grip on its own people have most European policy makers looking for new ways to get tougher on the Asian nation:

  • Chinese companies like ByteDance, Huawei, and Hikvision might pose legitimate threats to the national security of its nominal trade partners. Lawmakers in the US, UK, Australia, and elsewhere have used that argument to impose sanctions and fuel intensifying trade wars with Beijing.
  • Countries like the Netherlands, Italy, and Germany have all begun looking to the US for influence when it comes to exports and investments controls on China, Bloomberg reported.

Källenius agreed that the pandemic supply chain weaknesses did highlight his industry's over-reliance on China, especially for substances like lithium, which powers electric vehicle batteries. But he added that "decoupling from China is an illusion, and also not desirable."

Souring Relationships: Ties between China and some European countries seem to be heading south quickly. In a show of force, China recently set up a fleet of naval vessels and jets off the coast of Taiwan to conduct military drills. Political figures around the globe saw it as unnecessarily threatening. After a visit to China last month, German Foreign Minister Annalena Baerbock condemned any form of Chinese aggression toward Taiwan and told her country's lawmakers, "China for us is a partner, competitor and systemic rival. Unfortunately our impression was -- I want to emphasize unfortunately -- that the systemic rival aspect is growing ever stronger."