26 March 2017

Vested Interest

It's understandable that what affects you is important. That could include something that will raise challenges to your business or cost you financially. However, painting a picture that is misleading or false to achieve what is desired is dishonest. Yet that is the modus operandi of many today and the media are part of the misinformation propaganda.

Take the UK. When the Commonwealth was losing its common wealth benefit, the UK feared being isolated. It had been barred entry to Europe in the 1960's but did enter successfully in the 1970's. Now it's future was secure in a union that was of mutual benefit.

Erm, not quite. The UK is increasing its borrowing as an over inflated currency hampers exports. Excessive borrowing to prop up a lifestyle is not sustainable, but few notice or care. Few worried about Greece either..... Anyway, the UK imports about half of the food it consumes and Germany supplies far more cars to the UK than the UK makes for its own market. Bonkers! I just found this article (the link is at the bottom of the page) that shows what's been going on.

Between 1998 and 2014, vehicle imports from the EU to the UK jumped from £14.3 billion to £31.3 billion. Components took the total to £43 billion. Meanwhile exports from the the UK to the EU crept up from £8 billion to £11.9 billion, components taking it to £14.6 billion. Increasingly the trade is one way.

So any dire warnings that a trade barrier will hurt the UK and no mention of the EU being affected is totally inaccurate. Ironically the threats of a trade tariff are issued from the EU side and yet many will hold the UK responsible if it is implemented. Wouldn't it be hilarious if the EU imposed the 10% duty it threatens and the UK responded "We'll match your 10% and raise you 10%.

Hang on you say, aren't UK vehicle exports to the EU strong? Just over half go there and the rest elsewhere. Yes, half the exports is still a lot but don't forget the enormous level of EU imports. The pound is already well down since the decision to leave the EU so adding a tariff will greatly affect imports from the EU, helping local UK manufacturers. Trade deals elsewhere would also assist with UK  exports.

On that note from 1998 to 2014, UK exports outside the EU rocketed from £2.9 billion to £17.9 billion, zooming past the EU in value. That says one thing, the EU isn't working for the UK car industry but the rest of the world is. In reality, the EU is at present the vehicle trade winner with the UK, especially Germany.

So vested interests and the media generally paint a false impression of the likely outcome of a tariff between the UK and the EU. The lower pound is already working but the UK trade deficit is still far too high. If the locals were more aware and supportive of domestic manufacturing and production then that would be a huge help. The problem is UK ignorance and apathy, so the trade deficit conundrum remains. All I want is a clear picture of what is going on in the world. Unfortunately the world isn't honest enough for me to expect that.

To read more about the subject by someone more knowledgeable than I am, simply click here. The article is "Great British Cars: Getting Nowhere in Europe".

PS. Human machinations whether politics, commerce or the media - to name a few - I find abhorrent, so writing about it isn't easy for me.

2 comments:

zoldfulu said...

I find a few elements quite new, How did you reach to conculde that 50% of export is towards the EU?

I remember articles quoting for ratios as high as 80% of exports.


One more consitent argument I find somewhat difficult to justify: the single market (without the UK) means a market of 450 million consumers with about 10-11 million cars sold per annum. The UK is a market of 65mio consumers with w 2.6 million cars sold. To achieve an even ratio of trade I find somewhat overambitious.
http://www.acea.be/uploads/news_documents/20170117_PRPC_1612_FINAL.PDF


Finally, I am not sure if your faith in devaluating currencies is justified. In countries with strong trade unionism, the devaluation of currency will bring little in efficiency, as wage negotiations will take it into account. See the Italian approach, where inflation was automatically incorporated into annual pay raises, and after a few decades, you had to buy capuccinos and metrotickets with banknotes. Buckle up for a 100 GBP pint of beer! Brexit is a big surprise, that none of the wages could yet be adjusted to, but in the coming years, automakers will see little benefits in devaluating pounds.

I wonder what would keep Japanese automakers from resettling to new EU member states where wages are low, can more efficiently devaluate, and real trade unionism is non-existent. Most importantly. they are part of the market they are focusing on.

I think GM also realised this, getting out of Opel/Vauxhall is a big blow and a loss of major engineering capacities for a supercorporation that mainly engineers "badges".

RayCee Smith said...

Hello Zoldfulu. To answer your comments:

I didn't conclude any figures. The unit volume for vehicles is about 57% to the EU and in value terms easily under 50%.

The trade figures are moving consistently in the EU's favour. Increasingly the trade is one way. That is a problem for the UK.

As for currency valuations, the UK has been over valued for years. That has been hurting UK exporting. A fairly valued currency will definitely help exporting and hopefully investment. You cannot compare Italy (with its strict labour regulations) with the UK.

Both Mclaren and Aston Martin recently expressed their appreciation of a more realistic currency valuation.

As for the Japanese, Honda, I feel, is happy with what's transpired, with its emphasis on global exports. The culture of Japan is patience. I don't see Toyota or Nissan going anywhere else. Toyota's problem is what to make in the UK with the Avensis class in decline. Nissan has fantastic operation in the UK.

GM Europe was a German based company with no engineering input from the UK that I know of. Vauxhall cars are popular in the UK and that is something PSA will want to nurture.