No-deal Brexit: Imported cars could become dearer by £1,900

Summary

• The British car industry would be one of the most badly hit industries when EU common area regulation expires on 31 December 2020.
• The new tariffs that come into effect post 31 December 2020 would make the cars arriving on both sides of the economic block dearer, with SMMT anticipating that cars entering UK from EU witnessing a tariff increase of an average £1,900.
• Even foreign companies like Nissan and Toyota who have component plants In the UK have also been denied tariff relief for components sent to their EU assembly centres.

The British car industry faces a greater challenge when the EU common area regulation expires on 31 December 2020. The society of motor manufacturers and traders (SMMT) in the United Kingdom has stated that there will be an average increase of £1,900 in cars imported into the UK from EU if the regulation falls through on the due date.

The impact, however, will be more on the Electric cars which are expected to see a price increase on an average of £2,800, which would wipe out a substantial portion of the subsidy benefit the government has extended to them. The SMMT further stipulates that a no-deal Brexit would come to be a major setback to the " Net Zero" objective of the government as the new tariffs would dissuade a lot of people from buying electric vehicles, who had been contemplating to do so because of the subsidies. The British car industry has been one of the most vocal proponents of the Brexit deal as it faces massive production losses and labour layoffs of the deal fall through.

The impact of the expiry of the EU common area regulation on the British Car industry

The Automobile industry has suffered massive production slump in the past seven months. However, it benefited a lot because of the furloughing scheme and the Coronavirus Business Interruption Loan Scheme (CIBIL) but the slow uptake of consumer demand pick-up and the continuing issues with the supply chains and other logistical issues hampering the recovery in the industry. The hurry to immediately address these problems is also accentuated by the fact that the British automobile industry is one of the largest exporting sectors in the country. More time it takes to resolve its problems, the more difficult it will become for it to cater to its international markets, and the more business it loses to its competitors.

The importance of the British car industry

The United Kingdom Car industry has been a major wealth creator for the country. During the past decade, the industry has been one of the largest exporting sectors of the economy, exporting its products to more than 160 countries around the world. The sector generated £44.4 billion worth of revenue in 2019 by exporting nearly 1.05 million cars. Compared to the total exports of goods exported during the year its share was 14.4 per cent and compared to all exports from the United Kingdom its share was 7 per cent.

The industry has also been one of the largest employers in the country employing more than 166,000 people in 2018 which is 7 per cent of all manufacturing employees, and 1 per cent of all employees of the country.

The impact of the EU common area regulation expiry

The successful negotiation of the Brexit deal is of extreme importance to businesses on both sides as it would prevent the EU common area regulation expiry on 31 December 2020. During the forty-seven years that both sides were part of the same economic bloc, deep trading relations had developed between businesses on both sides. These business relations which were based on the reduced tariff structure on goods and people move within the bloc helped them to be sizable and competitive in relation to their international counterparts. When both sides parted ways, and new tariffs are imposed, these trading relations are now at the risk of falling apart. Businesses on both sides would lose their competitive advantage leading a fall in the share in international trade.

The Brexit negotiations were thus purposed to address this particular issue and keep the tariff structure between the two sides unaffected as possible to the structure when they had not parted ways. Diplomats and lawmakers on both sides thus are under immense pressure to successfully conclude the process and arrive at an amicable deal before the deadline.

Trade deals with other countries to counter the damage

Since 31 January 2020, when the UK officially got separated from EU, it initiated several trade talks to secure trade deals which would help its to expand its trading ties around the world. The country has initiated trade talks with the United States of America, its oldest strategic friend and the world’s largest economy. Apart from the USA, the country has also initiated trade negotiations with New Zealand and Australia.

Each of these economic blocs is major trading partners of the UK who already import a large number of British built cars. If most of these deals come through, it will provide a major boost for the British car industry, which will be able to recoup a significant part of the losses it could suffer from Brexit. Other than that, there are also several small west Asian and east European countries who import British cars, a better focus on these countries would also bring about expansion to the British car industry.