David Henig’s preliminary analysis on the government’s announcement on tariffs that will apply in the event of a no-deal Brexit.

UK tariffs in the case of no-deal Brexit have been announced. The headline is that 87% of imports should in the future be tariff-free, compared to 80% at present. However there is much detail below the headline.

I have been asked a number of times already to briefly outline the impact of the no-deal tariff announcement and identify particular sectors that will be affected. While wanting to be helpful I have had to explain that this would normally be the work of a full impact assessment over considerable length based on economic modelling. It is one of the failures of process that the UK Government has not released such a document alongside the tariff announcement, and that we will to have to wait for such analysis.

So, what can be said at aggregate level, and then in terms of individual sectors:

At aggregate level:

● A serious attempt to balance the different interests at play, UK producers and consumers, developing countries, and future trade agreements

◦ For UK producers, some protections particularly in terms of cars, primary agricultural produce like lamb and beef, ceramics, and fertilisers;

◦ For consumers, large numbers of tariffs removed on products including bicycles, cereals, and shoes;

◦ For developing countries continues preferences compared to others in key products like bananas and textiles;

◦ For future trade agreements, that these tariffs are only initially implemented for one year, so may increase in the future

● Recognising that many of our imports are currently tariff free through the EU and their trade agreements, a continuation, indeed likely an increase in tariff-free imports. This will probably mean EU producers lose out to Chinese and other lower cost producers particularly in industrial products;

● The hit to UK producers will primarily come from their inability to export tariff free, which will significantly affect competitiveness, though in some cases increased tariff free imports will also affect this;

● Probably little effect on consumer prices overall, these are in any case downward-sticky when tariffs are reduced (quality at the same price tends to rise though), but cars likely to be a big exception, where prices will rise, and bikes may be an exception in the opposite direction.

At a sectoral level:

● Farmers are partially protected by tariffs and quotas particularly for poulty, pgmeat, sheepmeat and beef, but in some areas such as eggs and cereals are opened to global competition;

● Car makers are protected by tariffs, but given that they will face tariffs in exporting this feels like an area where UK production will soon become uncompetitive in a no-deal Brexit;

● For industrial products where tariffs are currently in the 0 – 5% range, the removal of these tariffs is likely to lead to trade diversion from the EU;

● UK bike makers are particularly badly hit as anti-dumping duties and tariffs have been removed, and they will face tariffs in overseas markets. Bikes could well be cheaper, but the future of UK manufacturing is again uncertain;

● Tariffs are also removed on steel, which could also affect the competitiveness of UK production.

We await more details in the coming days and weeks of the impact of such tariffs if they are implemented.🔷

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(This piece was originally published on LinkedIn. | The author writes in a personal capacity.)

(Cover: Pixabay.)