It’s official. UK manufacturing is in recession. If the UK leaves the EU with anything less than single market and customs union membership, it’s game over for manufacturing in Britain. And the knock-on consequences* for the British economy are catastrophic.
Brexit will impact every person in the UK who depends on manufactured goods as a component, as part of a supply chain, or as a finished product.
My business relies on all three of these, and a no-deal/hard Brexit means the prospects for its survival, as for many others, are not good. Using my business and one of the more popular products we sell as an example, we might be able to illustrate the scale of the wider problem.
Obviously, I don’t want to cause problems for any of my suppliers, so I’ll simply refer to this product as Product X (PX for brevity).
PX is a component used in many cosmetic formulations. My supplier is based in England, and they manufacture the product there using many other components – components not available in the UK, which must be imported. In the event of no-deal Brexit, most of the components used to make PX will become more expensive and take longer to obtain. In turn, PX will cost more as the manufacturer can’t absorb all of these extra costs of delays, customs fees, tariffs, etc.
The PX manufacturing company sells its products to companies like mine (I’m a distributor) as well as finished-goods manufacturers. These manufacturers are based all over the world, including Africa. These African markets are available for export through interim partnership agreements and association agreements through the EU. In other words, the PX manufacturer is able to export to these markets with preferable arrangements because of the UK’s EU membership. Without these agreements, export to those markets becomes expensive and cumbersome – not only for the PX manufacturer, but for customers there who buy from them as these costs are passed along.
But other companies in the EU, still within the single market and customs union, can produce PX. They can easily obtain the raw materials for production. They do not have the extra expenses of customs fees, duties, and tariffs, or have to hold up production to wait for components to clear customs. And they don’t have to pass along the expense of extra exporting costs. Thus EU PX producers become more attractive to buyers because their products are cheaper and easier to get. This leaves the UK PX manufacturer, once working within the framework of the EU but now competing against it on unfavourable terms, in an untenable position.
Now picture every other manufacturer in Britain who depends on imported components for their supply chain. I can’t think of anyone who makes a 100% British product. This is why big manufactures like Airbus are sounding the alarm. They rely on importing components and then exporting what they’ve produced either to the EU or to a country covered by an EU-negotiated trade agreement. Their prospects are the same as those of the manufacturer of PX – unsustainable.
Manufacturing in the UK employs just under three million people. My business is one of the countless companies which rely on UK manufacturing, and if that manufacturing goes, my business goes right along with it. The knock-on effects are staggering to consider.
The ramifications of a no-deal Brexit go far beyond UK companies’ ability to export. It will drive most of them either out of the country or out of business. Brexiters promise wonderful new trade deals, but as these will take years to negotiate, they simply won’t come in time to save British manufacturing – or the thousands upon thousands of companies dependent upon it.
*for brevity, I’ve not touched on the regulatory alignment needed to ensure goods (like chemicals) conform to the standards of the markets into which they intend to be sold. This is an entire other essay – one I’m not sure I’ve the energy to write at the moment.