Brexit reduced UK car production by 45%, showcasing the costs and unintended consequences of new trade barriers

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UK car production plunged 45% in April after automakers brought forward their annual shutdowns to coincide with Brexit — only for the EU exit deadline to be extended.
Commercial vehicle exports were down 89%.
The carmakers have taken "a raft of costly and ongoing contingency measures" ahead of Brexit, including stockpiling, cost-cutting, training, and rerouting of logistics, said the Society of Motor Manufacturers and Traders.
The industry’s woes highlight the broader costs — and unintended consequences — of trade barriers as the US-China tariff war drags on.
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Car production in the UK plummeted 45% in April after factories shut down to prepare for the country to leave the European Union in June, only for Brexit to be delayed to October. At its worst point, commercial vehicle exports plunged 89%, according to the Society of Motor Manufacturers and Traders (SMMT), an industry group. Honda has announced it will close its plant in Swindon, England, with the loss of 3,500 jobs.

Other nations will likely take note of the fiasco, given the prospect of similar disruptions to industries as trade tensions rise around the world. The US is currently threatening to upend existing trade relations between itself and China, and the European Union.

Vehicle volumes tumbled by 57,000 to just under 71,000 as automakers including Jaguar Land Rover, BMW, and Peugeot brought forward annual maintenance stoppages that are typically scheduled for summer. The idea was to time the planned shutdowns to coincide with the original departure deadline of March 29, minimizing the impact of any disruptions as production lines would be halted, according to the SMMT. However, the UK government secured an extension after Brexit talks stalled.

"Today’s figures are evidence of the vast cost and upheaval Brexit uncertainty has already wrought on UK automotive manufacturing businesses and workers," said Mike Hawes, chief executive of SMMT.

"Prolonged instability has done untold damage, with the fear of ‘no deal’ holding back progress, causing investment to stall, jobs to be lost and undermining our global reputation."

Carmakers can’t repeat the shutdowns in October, meaning they will have to weather any supply-chain issues sparked by Brexit while operating at normal capacity. The stoppages were part of "a raft of costly and ongoing contingency measures" that include stockpiling, cost-cutting, training for new customs procedures, and rerouting of logistics, SMMT said. Those efforts have contributed to production declines for 11 consecutive months, including a 22% slump in the first four months of this year, it added.

SMMT has repeatedly called for "urgent action to end Brexit deadlock and prevent ‘no deal’ devastation." If the UK crashes out of the EU without a favorable deal, "border delays, production stoppages, and additional costs compromising competitiveness" could accelerate declines, it said.

The painful impact of a pending Brexit on the UK car industry speaks to the broader costs of trade barriers. They can knock firms’ confidence, making them hesitant to spend, hire, and invest. Trade restrictions and tariffs can be expensive, disruptive, and time-consuming for companies, as they may be forced to revamp their supply chains, adjust their production processes, and either stomach the additional costs or pass them on to consumers.

And while the Brexit situation — with its forced "cliff" deadline — might be unique, research published by the Federal Reserve Bank of St. Louis shows that "tariff increases have been typically followed by large and persistent decreases in economic activity."

"GDP per capita and wages each fall by around 2 percentage points relative to trend over the first 2 years after tariffs increase," the St. Louis Fed said, and "the average investment-to-GDP ratio declines by approximately 1 percentage point after tariffs increase."

The Trump administration is currently in a tariff war with China and other trade squabbles with Japan, Germany, South Korea, Vietnam, among other countries.

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Source: Business Insider – tmohamed@businessinsider.com (Theron Mohamed)