Germany will face costs almost six times higher than Brexit if Germany and the EU close the economy to China, the Ifo Institute said, citing the results of the study.
The biggest losers in the trade war with China will be the automotive industry with an 8.47% loss in value-added, transport equipment manufacturers with a 5.14% loss and engineering with a 4.34% loss, Ifo said.
The authors of the study, commissioned by the industry association vbw, said that companies should look to other countries to reduce dependence 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 countries such as the US," said co-author Florian Dorn.
The analysis simulated five scenarios, including the separation of Western economies from China, combined with a trade agreement between the EU and the US.
While such an agreement could mitigate the effects of a trade war with China, it would not fully offset them. Rather, it will cause the net costs of the trade war to roughly match the expected costs of Brexit.