Economic decoupling from China and other authoritarian states would mean major prosperity losses for Germany, according to the Ifo Institute.

On the one hand, sales markets would collapse, on the other hand, preliminary products and raw materials for German industry would become more expensive, write the Munich economists in a paper published in Munich on Monday under the leadership of Ifo President Clemens Fuest.

The client was the Association of Bavarian Business (vbw).

A reciprocal decoupling of the EU from China alone would hit German industry very hard and reduce its competitiveness, especially car manufacturers and mechanical engineering.

According to the Ifo calculation, higher import tariffs and other trade barriers on both sides would reduce German gross domestic product by 0.81 percent, which would cost a considerable proportion of overall economic growth.

In addition, the Ifo researchers emphasize that these are only the lower limits of the losses to be expected.

Accordingly, only comparatively small areas such as the textile industry would benefit.

Deglobalization is not a solution

The study also confirms previous Ifo studies that relocating industrial production to Germany or neighboring countries would mean enormous losses in prosperity.

In the event of a comprehensive relocation to Germany, the German gross domestic product would fall by almost 10 percent.

"Deglobalization could not only lead to higher unemployment and lower growth, but ultimately also endanger the country's political stability," warn the authors of the paper.

The Ifo Institute recommends reducing one-sided dependencies and diversifying supply chains.

"The fact is, however, that we have to stick to our basic business model of internationalization," summarized vbw CEO Bertram Brossardt for the client.