Introduction

What is Brexit?

In 2016, the United Kingdom conducted a referendum about the Brexit. What Brexit is?
Brexit is the separation of the United Kingdom from the European Union (EU). With 52% of
people voted in the withdrawal of the United Kingdom from the EU, the government of the
UK announced to officially withdraw from the EU. Whereas the Brexit should have to be
“no-deal Brexit” about which there are a lot of concerns and misconceptions.

There should be many issues in the no-deal Brexit and have many consequences on the
economy of the United Kingdom especially the automotive industry. The automotive industry
is very important for the United Kingdom. It has revenue of more than 82 billion UK pounds.
This industry also covers more than 14% of the total exports of the whole UK. The UK is the
biggest importer of European produced vehicles. In this essay we are going to discuss the
impact of no-deal Brexit on the automotive industry of the United Kingdom, focusing on the
balance payments, exchange rates, trade, and competition in the economy.

Discussion of UK’s Balance of payments-current account

B.O.P

B.O.P is an acronym to the balance of payments. This term is used in economics by the
economist or by decision-makers to better understand the performance of the economy of the
country in the international market. The BOP has three main components:

 Current accounts
 Financial accounts
 Capital accounts

Talking about the UK’s balance of payments, since the referendum has happened; we had
seen many changes in it. There is a lot of uncertainty in the trading of the country. We will
see the changes in the following points:

a) Main trade partners

If we look at the top trading partners of the UK, we can see that the European countries are
dominating by 52-53%. According to the statistic of the House of Commons library that is
shown in figure 1, in 2016, more than 550 billion pounds of trade is done by the European
countries. This huge amount of trade makes the EU the top trading partner of the United
Kingdom (House of Commons library). But after the no-deal Brexit, there should be a
decrease in the trading of UK goods with the European countries.

Figure 1:
(Source:https://ichef.bbci.co.uk/news/410/cpsprodpb/0D06/production/_99843330_chart-
ukchinatrade-zy5gc-nc.png)

Figure 2:

(Source: https://ichef.bbci.co.uk/news/410/cpsprodpb/CCAE/production/_102489325_2uk-
toptradepartners-nc.png)
If we take a look at figure 2 we can see the top trading countries using imports and exports
with the UK. Germany has more than 120 billion pounds of trade (imports and exports) with
the UK. Whereas, the United States is also one of the leading trading partners of the United
Kingdom.

b) Exports and imports of the UK

We know that the European Union is the leading trading partner of the UK, and the UK
cannot deny the fact of a decrease in trade with the European countries. According to the
report of Statistica 2020, the United States is the top trading country with more than 72.6
billion US dollars of trade which is equal to 15% of total UK’s Exports. Germany was the
second-largest exporter, following China which has 6.9% of total exports of the UK.

Figure 3:

(Source:https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktr
ade/january2019)

Figure 3 shows the change in the trade of goods with the European Union in the first three
months of 2019. The numbers of imports with the EU increased by 2.3 billion pounds while
there is also a decrease of more than 1 billion pounds of trade with the non-European
countries. However, the exports of the UK with non-European countries also fall by 2 billion.
This is all due to the no-deal Brexit which has consequences on the economy of the UK.
 c) Balance of trade

In 2019, according to the House of Commons library, the total exports and imports in the UK
were 699 billion pounds and 725 billion pounds respectively. This makes the UK accounted
for exports of 43% and 51% of total imports. More import means a trade deficit in the
economy. In the first few months of 2019, we see more than 3.9% of the total GDP of the
UK’s trade deficit in the economy which was 3.8% in 2018. The total trade deficit of the UK
in 2019 was around 130 billion pounds which are overcome by the 104 billion pounds of
trade services. But after all of that, there was still 29% of trade deficit left which has many
consequences on the economy. The trade deficit with the EU is more than 72 billion pounds
while with the non-European countries it is around 46 billion pounds.

Figure 4:

(Source: https://commonslibrary.parliament.uk/research-briefings/sn02815/)

As mentioned above we know that the UK has a lot more advantages in the industry of
automobiles. Companies like Toyota, Nissan, Audi, Range Rover, Audi, and many others
play an important role in the exports to the European Union. If no-deal Brexit happens, it will
cause an increase in the prices of these cars due to the high tariffs on the exports to the
European countries. This will directly affect locals of the EU, whereas for British citizens it
will become easy to buy these at low prices due to the fall in the demand for EU countries.
These all will impact o the UK’s current account which may suffer from less tax payment.
However, on the industrial side, there will be unemployment. Contrarily to this, the prices of
German cars will go up, and also the EU has to pay more for Toyota due to its possession.
This also results in the lowering of prices in real estate which could end the influence of
London on the trading market. As a result, the value of the pound will start falling which
helps the UK to boost up its exports of other industries. So what we can say is that as a result,
of no-deal Brexit, the sales of cars much slow down due to the slowness in the economy. The
following table shows the lack of sales in the automotive industry of the UK.

Table 1: Effect of economy on the sales of cars

Effect on the sales

due to the fall of 2016 2017 2018
economy
Impact of Brexit
Not too much not too Company is in the
TOYOTA effect on the
low losses
company’s sales
Struggling after the Instability in the
RANGE ROVER Stable
Brexit market.
Facing many
NISSAN Not good challenges after Company is in lossess
Brexit

Discussion of UK’s financial account -Flow of Investment

Figure 5: (Source: https://wolfstreet.com/wp-content/uploads/2020/02/UK-auto-production-

2019.png)
Figure 6: (Source: https://www.poundsterlinglive.com/images/graphs/uk-trade-balance-
trends-july-18.jpeg )

Figure 5 and 6 shows the UK’s financial trade account on the automotive industry. As per
the data provided by the Office of National Statistics, the UK recorded a net flow of
investment of about 35.2 billion pounds in the first two quarters of 2019, which
approximately makes 2.9-3% of GDP of Great Britain.

Figure 7: (Source: https://blogs.sussex.ac.uk/uktpo/files/2018/10/figure_1-jpeg.jpg )

(University of Sussex-GB)

Figure 7 which is the data that is provided by the University of Sussex-GB shows the inward
investment flows of the UK.

Great Britain joined the European Union back in the 1970s, with Denmark and Ireland. As
for now, the European Union is the biggest trading partner of the United Kingdom. The UK
exports more than 45% of its total exports to the European countries that contain many
industries and markets. However, the figures for the imports of the EU from the United
Kingdom lie above 53% that is more than any other country. That means most of the imports
of the European Union rely on the United Kingdom in various markets. The trading between
the EU and the UK allows the passage of labor, goods, and every other service between the
borders. The trading between both of the countries is not limited to the automotive industry or
transportation. It also includes many other things as well such as petroleum,
telecommunication, manufacturing, Information technology, cosmetics, health care,
medicinal and pharmaceutical industries, machinery, and many other services and goods as
well. It is a matter of fact that there is a lot of advantages to getting the membership of the
European Union. There are no restrictions on borders and trading is going on. Talking about
the CU (Custom Union) which is in the European Union helps in the removal of tariffs
within a specific area of trading allows all the member countries of the European Union to
trade freely without the implementations of the tariffs on the products of the market. As a
continuous effort of the European Union, the EU is providing a non-trade barrier to all of its
members which are also an important step in addition to free trade of the goods and services.
The United Kingdom is currently availing all the advantages of non-trade barriers of the EU
which includes the border passages, safety of products, standards of the products, and
services provided by the manufacturers. There are currently 27 members of the European
Union that justify the UK imports and exports to the European Union which collectively
make 98 %( Imports 53%, Exports 45%). The total EU export with the UK makes more than
13% of the national income of Great Britain. That means there should be a lot of
consequences in the case of no-deal. Maybe the UK has to go back to the agreement of the
world trade organization.

Table 2: World Trade Organization arrangement

Alternatives for the United

Advantages Disadvantages
Kingdom

World Trade  The trade with the

 The UK should be
Organization(WTO) EU is subjected to
focusing on the new
follow the rules of
deals of trade that
World Trade
must exclude the
Organization and
European Union
non-trade and free
tariffs barriers.
 The UK should not  This will end the free
have to follow the movement of people
rules and policies of along the border for
European Union trade or any other
regarding trade. activities.
 The UK should have  This will also end
to commit to not use access of European
and contribute to the Union to the markets
budget of the of the UK.
 European Union.

Discussion of World Trade Organization global rules of trade and their impacts on the
areas of competitiveness identified previously

WTO is an acronym to world trade organization which is an international organization

founded in 1945, that is responsible for the trade between two trading countries. It has over
164 members which make this organization the largest economic international organization
of the world. For the smooth trade between the member countries, WTO implemented some
rules and regulations. Some of them are discussed below:

Non-Discrimination:

The WTO supports non-discriminated trade between its member countries. It has two
components. One is MFN (Most Favorite Nation) and the other is National treatment policy.
For MFN both the trading members have to apply the same conditions for the trade. Whereas
the National treatment policy is concerned, the imported product or goods are not being
discriminated against by the locally produced products. It includes Security, Safety,
Standards, and liability. So as per the principle of a Most favorite nation, following the no-
deal Brexit, all products and services of the United Kingdom should include trade barriers
i.e., Custom checking, Tariffs, and regulations.

Transparency:

World trade organization wants all members to maintain and publish the rules and regulations
of trade. This helps the WTO and the trading members to improve their transparency on the
imported products. However, in the case of no-deal Brexit, the UK should have t follow the
rule and regulations of the European Union on the tariffs and non-trade barriers. According to
the World Trade Organization agreement, if the Brexit happens, the UK should have to pay
10% of the tariff on the goods that are trading between the EU and the UK.

Value for Safety:

All members of the World Trade organization are allowed to stop the trades between the
trading members/countries to protect the environmental, geological, and public health of
plants and animals.

Discussion of expectations of sterling exchange rate change post-Brexit 250

Whenever the exchange rate of any currency id discusses there should always be a discussion
about the foreign exchange market which is one of the essential sectors for the economy of
the United Kingdom. What is the foreign exchange market? It is the international market for
the exchange of currencies from one currency to another. It also referred to the international
market where currencies exchange takes place for global trade. It is usually abbreviated as
FX. The price for FX is determined by the exchange rate system that is responsible for the
supply and demands of products and currency of the country. The withdrawal of the United
Kingdom from the European Union has various effects on the foreign exchange rate. The
sterling exchange rate could help the UK to emerge and become stronger after the Brexit,
However, there will also opposite of that could have happened. But the fact is that the sterling
is devaluing against the United States dollar since the referendum on the Brexit has
happened. This means that the Brexit could result in the devaluing of the real value of
sterling. But it is also a fact that the devaluing of the sterling would not lead to the slowdown
of the economy of Great Britain. In essence, the Brexit will affect the economy of the United
Kingdom. The main concern is the stopping of free passage of labor, goods, and all services
which would have a great impact on the economy. As well as these concerns, the United
Kingdom will no further have the benefits of production, efficiency, etc as a full member of
the European Union. Not only the economy but the financial sector of the United Kingdom
will also be weakened and there should be a shortening of production and efficiency of
products that is enough for the UK for becoming less efficient and less specialized country. In
this way the economy and currency of the UK become weakened.

Discussion of implications for strategies of the UK MNCs

MNC is an acronym to Multinational Corporation, which is an international organization for

the controlling of production of goods all over the world. However, to talk about the MNCs
of any country it is necessary to look at the FDI (Foreign Direct Investment). FDI consists of
the type of investment whose source is a foreign country but the key principle of this
investment is to expand the existing established markets and also to start new businesses in
the country that will help in the development of the country. Following are some implications
of strategies by the UK for MNCs that lead FDI to fall if there is a Brexit:

 When the United Kingdom was in the European Union as a full member of the United
Kingdom, the EU is a great platform for all of the advantages for the multinationals
between members of the EU. But the fact is the multinationals are not able to pay high
costs of tariffs in the UK when exporting products from the EU.
 We know that the multinationals cost too much for their SCM and to remain in
contact with their headquarters and branches. This cost will further increase if Brexit
happens.
 The uncertainty that arises due to the Brexit could reflect on the future trade
agreements of the United Kingdom and the EU.