MNI BRIEF: ECB Looks At Impact Of China Trade Freeze
MNI (LONDON) - A sudden halving of foreign critical inputs from China-aligned countries—China, Russia, and Hong Kong—could cause a decline of between 2% and 3.1% in eurozone manufacturing value added, according to a European Central Bank study.
The study, which uses firm-level customs data to estimate the shock projects the effects across Belgium (2%), France (2.5%), Spain (2.9%), Italy, and Slovenia (both 3.1%).
Large firms would feel the impact most, with the decline in value-added occurring across all affected countries. The shock would be “extremely heterogeneous across sectors,” with the electrical equipment industry the most impacted, followed by chemicals, basic metals, electronics, and machinery.
There would be significant regional differences within countries, driven by specialisation and concentration. FCIs are defined as “items which European firms typically cannot provide themselves or whose production they have outsourced,” considered critical when they are difficult to substitute. (See MNI EM INTERVIEW: Foreign Firms Lack Level Playing Field In China)