ifo poll: economic war with China would be expensive

Status: 08/08/2022 11:26 a.m.

How high is the Sino-Taiwanese crisis? What are the consequences for the global economy? According to experts, a trade war with China would have huge repercussions for Germany.

A trade war with China would cost Germany almost six times more than Brexit. This is the result of a recent study by the ifo Institute. According to a study published today on behalf of the Bavarian Business Association (vbw), the car industry would be the biggest loser. In this case, the loss in value added would be around 8.5 percent or $ 8.306 billion. Mechanical engineering and transportation equipment companies would also suffer severe damage – a loss of $ 5.201 billion and $ 1.529 billion, respectively. Only relatively small areas such as the textile industry would benefit.

According to ifo calculations, higher import duties and other trade barriers on both sides would lower Germany’s gross domestic product by 0.81 percent, which would cost a significant part of overall economic growth. Furthermore, ifo researchers emphasize that these are only lower bounds for expected losses.

“Stick to the business model of internationalization”

“Deglobalization makes us poorer,” said study co-author Lisandra Flach: “Companies should not unnecessarily turn their backs on important trading partners, but instead rely on advance payments from other countries to reduce one-sided and critical dependence on certain authoritarian markets and regimes.” . In the event of a comprehensive relocation to Germany, Germany’s gross domestic product would then fall by almost ten percent. “Deglobalization may not only lead to higher unemployment and lower growth, but ultimately threaten the country’s political stability,” he continues.

If Germany as an exporting country wants to revise its business model, then, according to the ifo Institute, nationalizing supply chains is not a solution that will help the economy. “It is more promising to forge strategic partnerships and free trade agreements with like-minded nations like the US,” said co-author Florian Dorn, “That should be the goal of German and European economic policy.” The fact is, however, that “we must stick to our core business model of internationalization,” summed up Bertram Brossardt, vbw CEO for the client.

Germany must become independent

The German economy fears a further escalation of the conflict between its most important trading partner China and the island state of Taiwan. After the visit of leading American politician Nancy Pelosi, the People’s Republic of China has been organizing military exercises near the island it claims since Thursday. As a result, voices are being heard increasingly louder that Germany should not become as dependent on China as it does on Russian gas. China is by far Germany’s most important trading partner: goods worth around EUR 245 billion traded between the two countries in 2021.

In their research, ifo researchers simulated five scenarios – including the separation of Western countries from China, in conjunction with a trade deal between the EU and the US. An EU-US trade deal could mitigate the negative impact of the separation of the West from China on the economies of Germany and the US, but not fully compensate for it. Due to the expected benefits in trade relations with the US, the net costs would be close to the expected costs of Brexit.

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