Macroeconomics: UK economy, IB Economics

There's a suggestion that the Chinese are coming - with the intention of establishing a dominant position in the electric car market, potentially exploiting Brexit and engaging in dumping to establish Chinese brands such as BYD and Nio.

It's expected that the EU will impose tariffs on Chinese electric cars this year and Britain will be expected to follow suit, although perhaps if concerned MPS were sincere in wanting to protect the UK electric car market they'd have opposed Brexit. 

Who would have thought it - the UK and the EU are set to suspend the introduction of Brexit tariffs on the import of electric vehicles, due to come into force on 1 January 2024, for another three years. The move reflects the lack of battery capacity in the EU and the UK, and the fear that not doing so would give Chinese manufacturers a competitive advantage. 

Andrew Rawnsley argues that Britain has already lost the global battle to dominate the market for green technology, with China and the US far ahead. And without it, it seems as though we're going to continue to lag behind.

Today's big announcement at COP26 is about quitting coal, but for all the sound and fury, a number of major coal users - US, China and Russia - have not signed up to the agreement.

Of course, this move comes at a time when the UK is using more coal-generated power than at any other time this year.  

Britain's pattern of trade has seen a massive change with China replacing Germany as the UK's largest import market. In other words, we now import more from China than we do from Germany. 

Since the start of 2018, Chinese imports have risen by 66% to £16.9bn and imports from Germany have fallen to £12.5bn. The EU remains the largest source of imports but total trade with EU countries has fallen by 23.1% since 2018.

This is a seismic shift. 

The coronavirus latest: all the information you might want here - detailing the collapse in share prices (why are markets still open, given that any putative valuations are clearly guesswork?) restaurant bookings, the demand for cars in China and, on the flip side, the improved air quality in China too.

Just another example of those meddling Eurocrats on the day we mark our departure from the European Union?

It would seem that the sale of British Steel to Chinese company Jingye is under threat because the firm owns a French plant that supplies much of the steel used by the French railway company, SNCF, and the French have national security concerns about a Chinese company owning this asset. 

However, the French asset is one of the most profitable parts of the business, and hiving it off might make the sale of British Steel less attractive. As a result, the Turkish company, Cengiz is being considered as an alternative bidder. 

It seems that the Chinese are coming - in this case, to save British Steel - however, there are some concerns about Chinese ownership of UK assets.

I've put this in the Macroeconomic section because that's where most of my car industry material goes, even though, in this case, this is more of a microeconomic story.

However, the headline from the latest SMMT data is that there are lots of reasons for declining UK car output and Brexit is only one of them. Of greater importance perhaps is the sizeable decline in demand from other key markets, notably China.

More on the UK car industry - this time looking at the recent closures announced by  a number of firms. It's an excellent piece that goes beyond the simple 'Brexit' angle that some people have been keen to focus on. 

One for the parochial in me: the BBC follows up yesterday's speculation about the future of Jaguar Land Rover. This article highlights the factors that might be leading to job losses - noting that the combination of Brexit, a slowdown in the Chinese market and a decline in diesel sales have all hit the company hard.

Against this background, many analysts see job cuts as highly likely - and perhaps not just at JLR.

The 10th anniversary of the start of the global financial crisis sees a raft of material, and the newly entrenched Governor of the Bank of England starts to earn his corn by highlighting four risks to financial stability: household debt in the UK, a 'no deal' Brexit, levels of Chinese debt, a cyber-attack on the financial system.

And that, ladies and gentlemen, is why he earns the big bucks.

And here's the Guardian on why the suspension of the tariff has been agreed. 

Trade-offs, trade-offs, trade-offs. Economics is fundamentally about trade-offs, as demonstrated here by the complex issues associated with the import of Chinese electric vehicles.

Should the UK allow the zero-tariff import of Chinese EVs on the grounds that it will help us hit our net zero goals, and the target of not selling any new petrol or diesel cars by 2030? Or should it impose tariffs with an eye on protecting those vehicle makers located in the UK - and almost exclusively foreign-owned - that manufacture electric cars here? 

Certainly China has made great strides in this area, not least with the BYD brand, such that China will overtake Japan as the biggest exporter of cars this year, And Chinese cars are often far cheaper than Western alternatives. The issue is that many believe that these low prices are the result of 'unfair competition', largely the result of high levels of state support, and fear that what happened to the solar panel industry could be on the point of happening here - with European firms out-competed by Chinese firms, costing European and British jobs. 

You could be forgiven for thinking that our esteemed leader had got Brexit done. However, the latest European Court of Justice ruling will get Leavers frothing at the mouth. 

The UK has been fined more than 2 billion euros for failing to collect the correct amount of customs duties and VAT, allowing cheap Chinese imports of clothes and shoes to enter EU markets. Of course, the European Commission will get the blame and in no sense is it the fault of our authorities to regulate trade effectively. 

Reuters look at the Chinese governments attempts to build a Great Green Wall, in the hope of stopping the desertification of the Gobi Desert, and sandstorms hitting Beijing. 

It's an example of old-school interventionism, of the sort that only China can practice, in the hope that it can overcome the environmental problems associated with desertification. 

The UK has decided to follow the American-led boycott of Chinese telecoms manufacturer, Huawei, and its parts are going to be stripped out of the UK's 5G network over time. 

The downside? The fact that the Chinese are likely to react to this, and the fact that it is now going to take longer to roll out the UK's 5G network. And this is likely to have adverse supply-side effects. 

Another unusual macroeconomic effect of coronavirus is flagged up in this article in the Guardian which highlights the fact that Jaguar Land Rover are halting production on Merseyside and rescheduling production in the West Midlands.

This is largely to do with the coronavirus affecting the Chinese car market,  which is the world's largest, but one wonders if it's a taste of things to come as regards Brexit. 

China expert, Rana Mitter writes in the Guardian - wondering whether the UK will be able to balance its commitments to the US and the EU, with striking a trade deal with China.

Currently, the UK does more trade with Eire than China, and UK firms have little access to Chinese markets - especially in the service sector. Will we be able to buck this trend post-Brexit? 

I'm not convinced - but thankfully, Dr. Liam Fox isn't holding forth telling us to be grateful for all those fantastic trade deals that we've signed since the Brexit referendum

Larry Elliott with another take on the Huawei incident - within a historic context. In the article he wonders how a country that was once a manufacturing powerhouse has been reduced to being reliant upon China for telecoms technology. 

He argues that we were naïve in assuming that China would be content to be a low-cost manufacturing hub and that the free market was always best served with minimal intervention. He contrasts China's state-controlled capitalism with the shambolic attempts to manage industrial policy in the UK. As a result, in becoming an economy dominated by finance, we've lost comparative advantage in a number of sectors. And, I guess, that then suggests another question - what happens when we lose our advantage in finance? 

At last there's a bit of certainty as regards our post-Brexit trading future - we'll simply maintain certain existing EU tariffs on certain goods covered by EU tariffs but relax others, depending upon whether or not the tariff is seemingly in the interests of the British economy. 

For example, steel and Chinese tyres and wheels will see tariffs maintained but those on things like Thai sweetcorn and Chinese solar glass will be relaxed. 

Hats off to Larry Elliott, and I have to confess that his analysis is a more balanced take on the state of the car industry. He argues that Brexit is a convenient scapegoat and that, in reality, the industry is facing four challenges: a glut of global production, the decline in the Chinese market, diesel cars and the need to cut costs to invest in electric cars. 

He's right of course: all these factors are overshadowed by Brexit. and proof, if it were needed, of the fact that economic reality is often more complex than we portray it. Some people even argue that globalisation has negligible effects on employment in developed economies, and that technology has played more of a role. They'd be right!

Brexit has unsettled the car industry: now JLR have announced that JLR's Solihull plant is going to shut for two weeks in October, to allow the company to get rid of a build up of stock caused not because of Brexit but because of a precipitous decline in demand from China, where September sales are down 46%.