Severing ties between the European Union and China would cost Germany six times as much as Brexit, reveals a new study published today.
The country’s automotive industry, among the biggest contributors to Germany’s top line GDP, would shrink nearly nine per cent if the EU cut trade links with Beijing, according to the IFO Institute.
Western countries have been exploring opportunities to relocate supply chains to countries where diplomatic relations are stronger, a process known as “friend-shoring”, to reduce the risk of geopolitical tensions gumming up trade flows.
Vladimir Putin’s invasion of Ukraine, coupled with China sticking to its “zero Covid” policy, has encouraged policy makers and businesses to explore ways to shorten supply chains.
That trend has raised the likelihood of the likes of Germany and other rich economies watering down reliance on China to produce goods and services.
“If Germany, as an export nation, wants to realign its business model, then onshoring supply chains isn’t a solution that will help the economy,” Florian Dorn, a coauthor of the study, said.
“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,” he added.
Germany’s automotive giants such as Volkswaggen rely on international demand for vehicles to generate income.
China is one of Germany’s top export markets.