BIARRITZ, FRANCE - AUGUST 25: US President Donald Trump kisses Germany's Chancellor Angela Merkel as G7 leaders and guests gather for a family picture in front of the Biarritz lighthouse on the second day of the annual G7 summit on August 25, 2019.

German Chancellor Angela Merkel's famously pragmatic approach to foreign affairs is currently being tested to its fullest as the country — and the wider European region — contemplates whether to bar Chinese 5G equipment at the direction of the United States.

"Germany faces a difficult choice: allow Huawei in, and alienate the U.S., its most important security partner. Or keep Huawei out, and alienate China, an important trading partner that some German companies, including the country's influential auto industry, depend on for a significant chunk of their sales," Kevin Allison, director of Geo-technology at the research firm Eurasia, told CNBC Wednesday.

In May, President Donald Trump took steps to ban Huawei from selling its technology in the United States. U.S. officials have expressed concern over the company's links to the Chinese government and the security threat it could pose, something which the Shenzhen-based tech firm has denied. However, the German chancellor has put forward a different view.

She's decided not to outright block Huawei from participating in the development of 5G in Germany — a controversial option for some German lawmakers who also believe this could put the country at risk of surveillance by Beijing. Huawei has welcomed Merkel's "fact and standards-based approach."

The alliance between Berlin and Washington has been historically important and secure but has waned in recent years, even before Trump's arrival in the White House. In 2013, allegations emerged that the U.S. National Security Agency had tapped Merkel's phone.

More recently, the two countries have been at odds over defense spending under NATO, as well as on trade and climate change. This tense relationship hit a new low earlier this week when the U.S. ambassador to Germany criticized "senior German officials" for comparing the U.S. to China.

Ambassador Richard Grenell said in a statement Monday that "recent claims by senior German officials that the United States is equivalent to the Chinese Communist Party (CCP) are an insult to the thousands of American troops who help ensure Germany's security and the millions of Americans committed to a strong Western alliance." "These claims are likewise an insult to the millions of Chinese citizens denied basic freedoms and unjustly imprisoned by the CCP," Grenell also said.