Britain and the EU would sustain economic hits worth billions of pounds if no Brexit deal is agreed before the 29 March 2019, according to analysis by a German think tank.
British exports to Europe could fall by as much as 50 per cent, while German exports would decrease by 43 per cent, according to modelling by the influential German Economic Institute (IW).
If no deal is reached trade between the UK and the EU would default to the terms of the World Trade Organisation (WTO), which trade analysts expect would force countries on both sides of the Channel to impose tariff and non-tariffs barriers on goods.
“In case of a negotiation failure, a “hard Brexit” could cause considerably high costs on both sides of the Channel,” said the IW report led by Michael Huether, the Institute’s director.
Tariffs would cost the UK €5.1bn (£4.5bn) in the short term, covering trade worth €186bn in total. The levies would cost the EU €10.5bn according to a benchmark analysis assuming that trade volumes remain unchanged.
Meanwhile, the study found that EU exporters would face non-tariff barrier costs equivalent to €25.8bn, or 8.8 per cent of the value of exports to the UK. British firms would face costs of €14.6bn on exports to Europe.
Car manufacturers would pay an especially high toll, with German manufacturers paying a fifth of tariffs paid to the UK, while British car firms would pay a third of all duties collected by the EU.
Car industry bosses have been among the most outspoken critics of a “hard Brexit”. Carlos Ghosn, the chief executive of Renault, last week said “no deal” would jeopardise the British manufacturing industry. Meanwhile, Jaguar Land Rover chief executive Ralf Speth has said that UK firms may be forced to stop production.
Overall, the EU market accounts for just under half of British exports, with Germany the UK’s second most important individual export market after the US.
Damage in Germany would be concentrated in manufacturing-intensive regions.