Tuesday, 26 June 2018

Unintended but inevitable consequences

From the BBC:

Donald Trump has criticised the Harley-Davidson motorcycle firm over its plans to shift production away from the US in order to avoid European Union tariffs.

Ahem, the actual sequence of events was:
1. Trump imposes tariffs on imports to the USA, including from Europe
2. The EU imposed similar tariffs on imports from the USA
3. Harley-Davidson did the sensible thing.

From City AM:

BMW has indicated it could be forced to close its plants in the UK if it is unable to import components rapidly enough from the continent after Britain leaves the EU...

The warning from the car manufacturing giant comes hot on the heels of similar expressions of concern by Airbus and Siemens over the slow progress of the Brexit negotiations.

Last week, Airbus warned it could leave the UK in the event of a hard Brexit, putting around 14,000 jobs at risk. The firm said it would consider moving out of the UK if there is no transition deal involving ongoing membership of the single market and customs union*.

Siemens also issued stark warnings, with chief executive JĂĽgen Maier criticising the government for thinking the negotiations were going to be easy and for using "unhelpful" slogans.

This cuts both ways, and is down to pig-headedness on the part of the UK government as much as the EU. Pan-European manufacturers worry they won't be able to get non-UK manufactures into the UK and won't be able to get UK manufactures into other EU Member States, or at least, nowhere near as smoothly as before, thus buggering up their highly organised and choreographed international 'just in time' assembly systems.

Overall, it's a loss to mankind.

If it made economic sense for each manufacturer to have a small, self-contained assembly system within each country (or trade bloc), they would do it anyway. For example, there are Coca Cola bottling plants dotted all over the world because it is not a particularly sophisticated technique so any economies of scale from centralising would be wiped out by transport costs. Car and aircraft manufacturing is pretty much the opposite of that, they source parts from all over the world, assemble in one giant assembly centre and then re-export the finished product all over the world.

* In this context, I am not sure why the 'customs union' is particularly important, it's harmonisation of standards and import/export procedures (the main elements of the 'single market') which are the more important.


Lola said...

So if the uk says we are doing free trade it becomes an EU problem

paulc156 said...

So without an agreement with the EU that keeps in place current levels of frictionless movement of goods across borders, investment will obviously relocate to Europe in some considerable measure. Project fear becomes project reality.

Bayard said...

p156, the likelihood of non-tariff barriers was never part of Project Fear, in that it was always much more of a certainty than a possibility. Similarly, another certainty was that the present government would make a cock-up of the process, but that wasn't part of Project Fear either, for obvious reasons. Project Fear was all the silly stuff that was lampooned on this blog in the run-up to the referendum.
Most of the bad stuff that is happening and is being trumpeted by the Remainers as an inevitable consequence of Brexit is, instead, actually an inevitable consequence of the government cocking up the process of leaving.

Lola said...

Bayard. Seconded

paulc156 said...

"as an inevitable consequence of Brexit is, instead, actually an inevitable consequence of the government cocking up the process of leaving"
...which itself was inevitable.

Mark Wadsworth said...

L, sadly no. While we both know that zero tariffs etc is the best overall outcome, in this case the EU's retaliation has - from their narrow point of view - led to the desired result, that Harleys will be made outside the USA (possibly in the EU).

PC, 'frictionless movement' can be best achieved by the UK rejoining EFTA (if they'll have us) which is half-in, half-out and thus a reasonable reflection of the referendum result.

B, seconded and motion passed.

PC, yes, it was inevitable. Because their cunning plan is to fuck things up so badly (appointing Fox, Davis and Johnson to oversee proceedings? That's worthy of 'The Thick Of It') that the informal second referendum (i.e. MPs having a veto) means we effectively stay in the EU, but worse.

Bayard said...

"...which itself was inevitable."

Agreed, but there is no greater treason, than being right for the wrong reason. Never once was the inevitability of the incompetence of the government given as a reason to vote to remain in the run up to the referendum.

"Because their cunning plan is to fuck things up so badly... that the informal second referendum (i.e. MPs having a veto) means we effectively stay in the EU, but worse"

OTOH it could lead to the end of the long, long reign of the Tory party, and that can only be a good thing.

The Stigler said...

As someone working in a factory which does this sort of thing, there's rather a lot of hype around this problem.

Just In Time is not about getting things *quickly*. Car parts are not fruit that goes off in transit. Just In Time is about reducing how much stock you hold. If you have a steady stream of stuff arriving, you can hold less stock. If deliveries are more precarious, you have to hold more.

So, yes, it presents risks. It means holding more. And that costs companies money. Even as a leaver, I don't deny that. But what are we realistically talking here? Another day's stock, maybe? what's that going to cost?

Much like the bottling plant, there's a lot of stuff in a car that's generic. If you have to import it from another country, that takes time and that costs money, especially with a sea border. Every truck has to wait for some time and pay a cost for transportation. So, you're going to get bulbs made here, for example. BMW make their Mini panels in Swindon. It's not cheaper to make things in Northern Europe than here, so what it really comes down to is sourcing because of specialisation. Maybe the engine management systems boards.

If it really mattered that much to Nissan, why are they up in Sunderland, a good 8 hours trip from Calais? Move to the Midlands. That would resolve the 2 hour delay at Dover that people are talking about. If costs are that important to BMW, they'd move their factory out of Cowley and to somewhere without a greenbelt causing crazy prices. Hiring people around Coventry are a lot cheaper, yet that isn't getting them to move. And as for Airbus, that's a total bluff. Airbus is a political project. It depends on European governments giving them soft loans to keep going. Deduct the £16bn of subsidies and I doubt they have a business. So if China wants to fund Airbus, good riddance.