Anyone who has gone home with blisters on their feet from wandering through the more than two dozen cavernous halls of Hannover’s convention centre knows Germany takes its industry trade fairs seriously.

But when Rainer Brüderle, the German economics minister, threw open the doors of his country’s elaborate pavilion at the Shanghai Expo in May, it seemed Germany had outdone itself. The largest and – at a cost of €50m – most expensive trade fair exhibit Germany has ever built, “balancity”, as it is dubbed, is a bold statement about Berlin’s intention to fight for every inch of ground in the battle for a share of global trade.

After decades of success, Germany’s export industry is under attack from new competitors. China, whose economy was growing nearly 12% at the beginning of this year, overtook Germany in 2009 as the world’s leading export nation; meanwhile Germany’s export-reliant economic model is also in the crosshairs of European politicians who believe that country’s lopsided economy is hurting its neighbours.

Germany’s advances, especially over the past decade are the product of restructuring, productivity gains, and wage restraint to push costs. But German companies, especially the mid-sized firms that make up the Mittelstand, invest more in R&D than many of their rivals, meaning that they are not just waging a war over price, but often manufacture products that no one else can.

Hans-Jochen Beilke, chairman of the board of directors of EBM-Pabst Group, a manufacturer of ventilation systems for everything from tiny fans for personal computers to massive industrial systems, says that technology is what sets German companies apart. Unable to compete on price with Chinese copies of its computer fans, EBM-Pabst abandoned that market, he says, and focused instead on high-end products requiring the company’s individually designed software.

“That’s our advantage,” says Beilke. “The Chinese cannot do this yet. At least 50% of the intelligence in the motors is in the software.”

Companies such as EBM-Pabst have made Germany a leading exporter for decades and now its economy is increasingly dependent on exporting everything from sleek Mercedes limousines to steel mills, state-of-the-art laser technology and power plants to its European neighbours and countries as far flung as Chile and China.

In 1949, five years after the end of World War II, West Germany was still crawling from the rubble: its exports were a meagre $985m (adjusted for current prices), accounting for 1.6% of global trade, according to the World Trade Organisation; by comparison, the US claimed 20% of global trade that year. But as Germany’s exports grew, the US share of global trade declined. By 1960, when West Germany was in the midst of its post-war economic miracle, the country’s share of global trade was about 8.8% and the US share of global trade had shrunk to 16%. By 1990, the newly unified Germany had overtaken the US as the leading export nation.

As trade barriers broke down in the 1980s and globalisation took hold, German companies – from electrical engineering giants such as Siemens to smaller companies such as laser maker Trumpf – increasingly targeted global markets. Exports as a part of total output rose sharply. In 1991, manufacturing exports accounted for 22.4% of GDP; by 2008, Germany was exporting $1.4tn worth of manufacturing goods, 9% of the global market, and 41% of GDP.

The huge impact of exports on the economy is helping the country pull out of the recession, as strong demand from emerging markets in Asia fills order books at German companies. After a historic drop of 14.2% in 2009, German exports began to claw back some ground at the beginning of the year.

“Growth is coming mainly from outside the EU,” says Anton Börner, president of the German exporters’ association BGA. “Germany’s export industry is gradually putting the crisis behind it. The German economy is benefiting from having done its homework in the past and is now internationally competitive.”

Once considered the sick man of Europe, German industry has made more gains to improve competitiveness over the past decade than other major EU members or the US, its major trading partners. In real terms, total compensation per German employee fell  
0.5% between 2000 and 2008, according to data provided by the Organisation of Economic Cooperation and Development (OECD). Among other G7 countries, only Italy saw a fall in compensation, about  
0.4%. In all other G7 countries, employee compensation rose: Japan by 3.5%, Canada by 4.3%, France by 6.7%, the US by 9.5%, and the UK by 10.5%,.

The upshot: since 2000, Germany’s share of global trade has grown 8.94%, while the US has lost nearly 13%, the UK has shed 14%, and France’s share plunged 23%. The biggest losers among the G7 countries were Italy and Canada, whose shares of global trade fell 31% and 27% respectively.

Increasingly, though, economists and Germany’s neighbours in the EU are growing wary of the country’s export-driven economic model. “Germany is the only G7 country to have gained market share [in global trade] over the past decade, but because those gains are based on price competition, it will be hard to repeat,” says Felix Hüfner, an OECD economist and head of the Germany desk.

So, what happens if Germany’s export engine begins to sputter? The danger is twofold. Should exports decline as they did during the recession, Germany’s economy only has one leg to stand on because domestic demand remains weak. And as Germany starts reining in the huge budget deficit it piled up witheconomic stimulus during the recession, economists see a danger that domestic demand could remain stagnant or even weaken over the next few years. The OECD, in its latest report on Germany, published in March, says consumer demand remained positive during the recession only because of government spending.

Without the help of government handouts, though, consumer spending is expected to fall 1.4% this year, predicts the OECD. And declining domestic demand – whether it is falling public construction because of government spending cuts or anaemic consumer spending – hits the non-exporting industries as well as the country’s neighbours.

Indeed, against the backdrop of the Greek debt crisis, some of European leaders griped that Germany’s uneven economy was partly to blame for the economic weakness in the rest of Europe. Christine Lagarde, the French finance minister, earlier this year made unusually blunt statements, suggesting that Germany, with its healthy trade surplus, could do more to support domestic demand as a way of helping the export industries in other European countries.

“In a crisis situation, everyone needs to make an effort,” Lagarde said. “Germany could take measures to reduce its taxes in order to encourage internal consumption. This could help us in France export our products to Germany, which is our biggest trading partner.”

Lagarde got some support from the OECD, which warned Germany that it needed to both “ensure the high performance of the export sector and broaden this performance to other sectors of the economy.”

German officials have retaliated by saying that other EU members should do their homework just as Germany had. Clearly, no one doubts that Greece’s problems are homegrown, the effect of a country rife with corruption, lacking fiscal discipline, and living well above its means for decades. But some economists and commentators are suggesting that Germany gets an uneven advantage from the euro, the common currency adopted by a large number of EU members.

André Sapir, a senior fellow at Bruegel, a Brussels-based think tank, explains that when the euro was created in 1999, Germany’s currency was overvalued.

Its European neighbours and trading partners lost the ability to compete with Germany by devaluing their currencies, which they gave up for the euro. Then German industry began to do its homework: unions exercised wage restraint and companies invested in new technology to boost productivity. “In effect, they devalued by improving their competitive situation,” says Sapir.

German economics minister Brüderle, is unimpressed by such criticism and instead insists that the other members of the eurozone do their part by becoming a lot more like Germany, focusing on fiscal discipline and whipping their industries into shape to make them more competitive globally. When unveiling the “balancity” pavilion in March, Brüderle told reporters in Shanghai that France should “do like us”.

“Build up your strength. It’s like a 100m dash: you can’t give those in second and third position a better chance by putting lead into the jogging shorts of the fastest runner.”

But many economists doubt following Brüderle’s advice would be good for Europe. In the end, it could just extend Germany’s lopsided economic model, with chronically weak growth, to the rest of the eurozone.