Macroeconomics: UK economy, IB Economics

There's a suggestion that the Chinese are coming - with the intention of establishing a dominant position in the electric car market, potentially exploiting Brexit and engaging in dumping to establish Chinese brands such as BYD and Nio.

It's expected that the EU will impose tariffs on Chinese electric cars this year and Britain will be expected to follow suit, although perhaps if concerned MPS were sincere in wanting to protect the UK electric car market they'd have opposed Brexit. 

Confirmation that the proposed 10% EU tariff on UK electric cars has been postponed until 2027, however the EU has also insisted that this is the last time it will postpone its introduction. As a result, as of 2027, rules of origin will apply from then. 

Who would have thought it - the UK and the EU are set to suspend the introduction of Brexit tariffs on the import of electric vehicles, due to come into force on 1 January 2024, for another three years. The move reflects the lack of battery capacity in the EU and the UK, and the fear that not doing so would give Chinese manufacturers a competitive advantage. 

The 'have your cake and eat' school of Brexit is eyeing the current state of car manufacturing, and arguing that it would be advantageous for the electric car sector if there were tariff-free trade. 

Ostensibly good news for Britain's beleaguered car manufacturers with the news that BMW is investing in its Oxfordshire and Swindon plants to build the next generation of the electric Mini. However, for all the positives, not least the multiplier effects triggered, you might also ask how much government money has been offered to secure this. 

And despite signs that other manufacturers have chosen to invest in Britain, industry observers note that Britain is still lagging behind a number of its trading partners, not least in its ability to produce electric car batteries, something that's been hampered by the collapse of Britishvolt. If this isn't tackled then there are going to be tariffs levied on imported batteries that might make UK-based manufacturing more expensive.  

Who would have thought it, but EU electric car exports to the UK are going to be adversely affected by Brexit trade barriers, with the introduction of tariffs on cars which don't contain 45% of the value of the car being made in the EU or the UK. Such a move would add $3bn in costs to the cars and reduce trade in the sector. 

One for the costs of Brexit file, with car manufacturer Stellantis, owner of Vauxhall arguing that unless the government can renegotiate some Brexit rule of origin clauses, it's going to be uneconomic to manufacture electric vehicles in the UK. 

This is because if they can't/won't/don't UK-made electric vehicles are going to be subject to a 10% tariff and this will make them uncompetitive. That said, this issue is also affecting Stellantis's site elsewhere, although seemingly to a lesser degree. 

The UK is maintaining restrictions on imports of steel, although the tariff that's been imposed is far from straightforward: the measures, first introduced in 2018 only impose a tariff after a certain quota of steel imports have been reached.

There is some debate about whether the measures contravene international law related to Britain's obligations as a WTO member, but other nations are maintaining similar restrictions to protect their steel producers.

The UK and India are hoping to conclude a trade deal - getting rid of tariffs on goods and services and making movement between the two economies far easier too. It will no doubt be trumpeted as a major triumph for post-Brexit Britain.

However, let's look at the detail: in 2020, India accounted for 1.25% of UK exports or $4.63bn - so whilst there's capacity for trade to grow it's far from being a major trading partner. 

Is there an end in sight for US tariffs on British steel, and what are the implications of this?

Since 2018, UK steel exports faced a 25% US tariff and aluminium exports a 10% tariff. However, the US ended tariffs on EU steel in 2021, and as a result, the UK has a competitive disadvantage in both markets.

Factor in higher energy costs and the sector is heavily squeezed - so even if these tariffs are removed, it might be too late.

The UK and US have opened talks looking at abolishing tariffs on UK steel - at last. 

However, note two things: one, it's only the start of talks; two - the order of negotiations. The US have already agreed to remove tariffs on EU steel have initiated negotiations with them first. 

Another BBC article looking at the implications for the UK steel industry of it being at a competitive disadvantage relative to its EU competitors when exporting to the US.

The problem is that UK steel is still subject to a 25% tariff whereas EU steel is not - as a result some producers are looking to shift production to the EU so as to avoid the tariff. 

Britain's International Trade Secretary has threatened retaliation if the US fails to lift tariffs on UK steel. Pathetic! Like Brexit, it's another 'We Hold All the Cards' moment. 

I suspect that her American counterpart isn't bothered in the slightest. Selling to the far larger EU market is clearly much more desirable than selling to us. 

One for the costs of Brexit file, with the news that UK-Canada trade negotiations have faltered over the issue of the UK permitting the import of hormone treated beef and the demands of Canadian cheesemakers.

As a result, having previously been trading with Canada on the same terms as the EU, we're now trading on worse terms, with car manufacturers and UK cheesemakers now facing tariffs on their exports. 

You really couldn't script it. Apart from the bits that you self-evidently could. 

And here's the Guardian on why the suspension of the tariff has been agreed. 

One for the costs of Brexit file, with the well-publicised news that UK and EU electric vehicles will be subject to tariffs as of January if they break so-called 'rules of origin' designed to ensure that the bulk of the cars are manufactured in Europe. Unfortunately, a lack of battery capacity, not least in the UK, makes it likely that most of the cars will be subject to a 10% tariff, potentially making them uncompetitive.

Who would have thought it? 

Trade-offs, trade-offs, trade-offs. Economics is fundamentally about trade-offs, as demonstrated here by the complex issues associated with the import of Chinese electric vehicles.

Should the UK allow the zero-tariff import of Chinese EVs on the grounds that it will help us hit our net zero goals, and the target of not selling any new petrol or diesel cars by 2030? Or should it impose tariffs with an eye on protecting those vehicle makers located in the UK - and almost exclusively foreign-owned - that manufacture electric cars here? 

Certainly China has made great strides in this area, not least with the BYD brand, such that China will overtake Japan as the biggest exporter of cars this year, And Chinese cars are often far cheaper than Western alternatives. The issue is that many believe that these low prices are the result of 'unfair competition', largely the result of high levels of state support, and fear that what happened to the solar panel industry could be on the point of happening here - with European firms out-competed by Chinese firms, costing European and British jobs. 

The Society of Motor Manufacturers and Traders has continued to alert us to the dangers facing UK-based electric car manufacturers from January 2024. At that point, tighter rule of origin laws, particularly in relation to car batteries, are due to kick and and their will be a 10% tariff on any cars that are exported from the UK and fail to comply with EU legislation.   

Thank goodness the government are talking to the EU about their rule of origin laws and electric vehicles. You'd almost think that the government might have a vested interest in ensuring the smooth running of the economy. You might also assume that the government might want to be pro-active rather than reactive.

And 7 years on, you'd think that they might be keen to spell out the benefits of Brexit. But given that none of the main parties seemingly want to do this, you can understand why they don't.

The UK government has announced that it is going to extend the existing import tariffs on steel for a further two years, in line with many of our trade partners. It is argued that if we allowed unfettered access to the UK market, it could cost the UK economy around £150m a year. 

However, it's not yet clear how much the cost of the tariffs themselves are in relation to this. 

What measures might be introduced to tackle the cost of living crisis? Earlier this week, the call was for non-fiscal methods of doing this - and some of the suggestions have including relaxing health and safety legislation in nurseries, phasing out green levies on electricity bills and removing tariffs on foodstuffs exclusively produced overseas. 

And, whisper it, there are some who are calling for tax cuts. 

As flagged yesterday, the US has repealed tariffs on UK steel and aluminium (not aluminum!) exports, and Britain has done the same to its retaliatory tariffs. 

The article suggests that at some point the US and the UK will think about negotiating a free trade deal, however, the fine print to the article gives you a little clue to the relative importance that each side places on this.

Presently, as the article notes "While America accounts for nearly one fifth of total UK trade, the UK market represents just 5% of US exports." That still won't stop us claiming that we "hold all the cards", I suspect. 

Aha! The first sighting of a freeport: but are they good economics. Whilst you might argue that establishing them might generate a multiplier effect, critics suggest that for all the absence of tariffs and taxes, they have to be paid somewhere along the line. 

And as for the notion that we couldn't have freeports if we hadn't left the EU, it's utter rubbish. A lie. But as we all know the Prime Minister has never told any of those.  

Hurrrah! It seems as though the US are going to relax tariffs on UK steel exports. Just not yet. 

In the meantime, the 25% tariff will mean that our steel exports are at a considerable disadvantage, not least relative to the EU. Still, at least we've got our sovereignty. One for the costs of Brexit file. 

One for the costs of Brexit file - New Year's Day will see European  steelmakers having a 25% cost advantage over their UK rivals when exporting to the US. 

Tariffs on EU steel are being removed; those on UK steel remain. UK exports to the US have halved since the introduction of tariffs un 2018,  but Penny Mordaunt would want us to believe that this has had nothing to do with Brexit, much as queues on Kent motorways, a shortage of lorry drivers and fuel and energy crises have nothing to do with Brexit.