Speaking at the Berlin Global Dialogue, Merz pointed to the EU's trade deficit with China but meanwhile acknowledged China's competitiveness, Xinhua reported.
He said, "China is very competitive, and we have to respect the success of China in research and development."
However, he also highlighted measures the EU was considering to address what it viewed as unfair trade practices.
Merz said Germany and France have proposed a new EU trade defense instrument that would allow the bloc to respond more quickly to practices that harm European industries and supply chains. He added that the proposal had received unanimous support from EU leaders at last week's European Council meeting.
"We are opening the toolbox, we are showing the toolbox, but we don't want to make use of our toolbox," he said, stressing that the aim was to deter unfair practices rather than trigger a trade conflict.
Merz also said European and Chinese officials have begun talks on various trade issues, with initial results yielded. He emphasized that the EU wanted to maintain economic ties with China while ensuring fairer trading conditions.
"We want to have fair trade with China in our joint and mutual interest," he said.