Brexit is already damaging Germany’s trade with the UK and it is set to get worse, the European power-house’s leading business group has warned.

Speaking to HuffPost UK, the Association of German Chambers of Commerce and Industry (DIHK) – which represents more than three million business and entrepreneurs – cautioned that even if the UK strikes a free trade deal with the EU, the impact of trade barriers would only be “reduced” – not completely neutralised.

The warning comes as Brexit talks between the UK and EU appear on the brink of collapse as both sides want the other to make the first sign of compromise on the size of the divorce bill.

With fewer than 20 months before the UK officially leaves the EU, there is precious little time for delays to the negotiations, and if no deal is done then Britain will crash out of the trading bloc on World Trade Organisation terms.

While the DIHK painted a pessimistic picture of future trade with the UK, the Italian Chamber of Commerce in the UK struck a more optimistic note, predicting that its country’s exports to Britain would not be drastically affected by the final Brexit deal.

But as trade with Germany is worth billions more than that with Italy (three times as much in exports, nearly four times as much in imports in 2015), the warnings from DIHK will heap further pressure on the UK government to secure as strong a Brexit deal with the EU as possible.

DIHK spokesperson Thomas Renner told HuffPost UK: “Brexit will damage the German economy as a whole, despite some single locations or companies who might benefit from shifting jobs and investment from the UK or of a weaker British Pound. 

“Even if Brexit will hit the British economy more, in the end it is a lose-lose situation. 

“Negative consequences are already there, even if Brexit negotiations have just begun. 

“Brexit already has impacts on the UK trade with Germany: in 2016 exports to the UK decreased by 3%.

“Investment decisions will be affected too: a DIHK survey shows that 40% of German companies expect less trading with UK after Brexit and almost 10% plan relocations of investments from UK.”

Germany is the UK’s largest import partner, with £6billion of goods coming into Britain from the European powerhouse in November 2016.

Yet even before Theresa May triggered Article 50, exports from Germany to the UK decreased by 3 per cent in 2016, and one in ten German companies now plan to relocate investments out of Britain.

The car industry is the largest sector when it comes to German exports to the UK, accounting for 25% of all exports in 2015.

According to the German Association of the Automotive Industry (VDA), around 800,000 new vehicles were exported to the UK in 2016 – almost one fifth of all exported German cars.

The German automotive industry has 100 production plants in Britain, and most of them are facilities of German supply companies.

When Theresa May triggered the Article 50 process in March, President of the VDA Matthias Wissmann warned the two-year window for negotiating both the terms of the divorce and future trade deal was “not an easy task.”

He added: “The EU needs Britain, and Britain needs the EU. There is no doubt that a ‘hard Brexit’ would also damage the British automotive industry, and would be both difficult and expensive.

“The consequence would be a long phase of uncertainty. It will be years before new treaties are concluded. Prospects like that deter investors.”

Renner said Germany’s powerful automobile industry were worried not just about “uncertainty on tariffs”, but also “patents, data privacy and approval procedures.”

He added: ”Other branches are affected too: manufacturers, pharmaceuticals, financial sectors. 

“But in fact, the Common Market is even more important. Here lies the focus of the German economy. 

“A free trade agreement would help to reduce the impact of trade barriers in general, but this only a mild instrument compared to full fledged membership of the European Single Market.”

DIHK calculates about 750,000 jobs in Germany depend on trade with the UK, and about 2,200 German companies have branches in the UK employing about 400,000 people. 

About 1,400 British companies have branches in Germany, which employ about 250,000 people.

When asked about the impact of the UK leaving the EU without a free trade deal agreed, and therefore operating on World Trade Organisation terms, Renner said: “The WTO-Status is the least favorable option for UK – and for the German companies.

“In this scenario, and without an agreement after the 2 years there would be an average tariff of 5% on all goods. In specific sectors like food and agriculture it could be tariffs of 20% and more.”

Renner also touched on concerns about the practicial consequences of the UK leaving the customs union.

“Businesses are concerned that Brexit will lead to more trade barriers – additional bureaucracy, increased waiting time and stricter border controls thus higher costs,” he said.

One German company who does not seem to have been deterred from investing in the UK is BMW, who announced on July 25 production on the new electric Mini would take place at it plant in Oxford.

Both before and after the Brexit vote, BMW warned that the UK leaving the EU could have a negative impact on its operations in Britain – but the decision to assemble the electric Mini in Britain is a clear indication the economic picture is less volatile than had been previously painted.

The company claimed no special reassurances had been sought by or received from the UK government regarding Britain’s post-Brexit future ahead of the decision – unlike those given Nissan and Toyota, according to reports.

Cars also top the export table from Italy to the UK, but at just 4.7% of total goods sold to Britain, it represents a much smaller slice of the pie than in Germany.

Machines – such as household appliances – make up 22% of all exports, while food – mainly wine – comprises 10%.

Because of this diversity of goods, Leonardo Simonelli, president of the Italian Chamber of Commerce and Industry for the UK, played down the impact of Brexit on trade between the two countries.

Simonelli told HuffPost UK: “Italy’s trade is qualitative not quantitative.

“If somebody wants a cheaper product then they don’t buy an Italian product already.”

He added: “The Italian companies who have invested in the UK – they don’t care about Brexit. They have already made an investment.

“My opinion is that the UK will not suffer too much.”

Simonelli, whose chamber is part of Assocamerestero – an association that joins together 78 Italian Chambers of Commerce in 54 countries – did sound a note of caution in one aspect though.

“Brexit has an impact on people psychologically, there’s an element of not being as welcoming as before,” he said.

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