Germany would face costs almost six times as high as Brexit if it and the European Union were to shut China out of their economies, the Ifo institute said on Monday, citing the results of a study.
The biggest losers of a trade war with China would be the automotive industry with a 8.47% loss of value-added, manufacturers of transport equipment with a 5.14% loss and mechanical engineering with a 4.34% loss, the Ifo said.
The authors of the study, commissioned by the vbw industry association, said companies should pivot towards other countries to reduce dependency on certain markets and authoritarian regimes.
The goal of German and EU economic policy should be “to establish strategic partnerships and free trade agreements with like-minded nations such as the U.S.,” co-author Florian Dorn said.
The analysis simulated five scenarios, including a decoupling of Western economies from China combined with a trade agreement between the EU and the United States.
While such an agreement could cushion the effects of a trade war with China, it would not offset them entirely. Rather, it would result in the net costs of a trade war equalling roughly the expected costs of Brexit, Ifo said.