Separation from China threatens the German economy

Mercedes plant in Beijing: German car makers are particularly dependent on the Chinese sales market
Image: AP

According to a recent study by the Ifo Institute, it is easier said than done not to trade with authoritarian states. A trade conflict with China would significantly lower economic growth, economists say.

to meAccording to the Ifo Institute, economic separation from China and other authoritarian states would mean serious losses to Germany’s prosperity. On the one hand, markets would collapse, on the other hand, the prices of preliminary products and raw materials for German industry increased, Munich economists write in a newspaper published on Monday in Munich under the chairmanship of Ifo Clemens Fuest. The client was the Bavarian Business Association (vbw).

Mutual separation of the EU from China itself would hit German industry very hard and reduce its competitiveness, especially among car and mechanical engineering manufacturers. According to Ifo’s 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 portion of overall economic growth. Moreover, Ifo researchers emphasize that these are only the lower bounds of expected losses. Therefore, only relatively small areas such as the textile industry would benefit.

Deglobalization is not the solution

The study also confirms previous Ifo research that relocating industrial production to Germany or neighboring countries would mean huge losses in wealth. In the event of a comprehensive relocation to Germany, the German gross domestic product would fall by almost 10%. “Deglobalization may not only lead to higher unemployment and lower growth, but ultimately threaten the country’s political stability,” warn the authors of the article. The Ifo Institute recommends reducing unilateral dependencies and diversifying supply chains.

“The fact is, however, that we must stick to our core business model of internationalization,” concluded vbw CEO Bertram Brossardt for the customer.

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