It appears that the consequences of the long-lasting Brexit drama could be ludicrous compared to the potential losses from the trade conflict with China. Analysts reckon that a decoupling with China cost Germany almost six times as much as Brexit.
When trade relations between countries turn sour, it usually leads to huge financial losses. Things are getting worse if those countries are unable to find an agreement. Therefore, they are trying to escalate pressure on each other. If such a situation takes place, negative consequences will definitely follow. Currently, trade relations between Germany and China are very shaky. Economists have already started calculating the potential losses of Europe's largest economy in the event of a trade war between the countries. According to the German Institute for Economic Research (Ifo), the financial damage to the German economy will be six times higher compared to Brexit. The automotive industry (-8.47%), manufacturers of transport equipment (-5.14%), and mechanical engineering (-4.34%) will bear the brunt.
"Rather than turning away from important trading partners without good reason, companies should additionally source inputs from other countries in order to reduce one-sided and critical dependencies on certain markets and authoritarian regimes," analysts at Ifo stated.
"A more promising option would be to establish strategic partnerships and free trade agreements with like-minded nations, such as the US. That should be the objective of German and European economic policy," Florian Dorn, the co-author of the study, said.
