Manufacturing after Brexit
In mid-2020, UK in a Changing Europe published its report on the eﬀects of Brexit on UK manufacturing, and the likely eﬀects after the end of the transition period. The present report is an updated view of where UK manufacturing stands after Brexit.
The report ﬁnds:
- The Trade and Cooperation Agreement (TCA) helped avoid tariﬀ barriers. However, non-tariﬀ barriers have returned, and the end of the transition period has brought adverse impacts for UK manufacturing.
- The TCA does not fully replace the frictionless trade and market integration that existed before it. The main adverse eﬀects have been:
- administrative barriers to trade (e.g. customs formalities, proving rules-of-origin requirements)
- disruptions to labour ﬂows, both aﬀecting certain manufacturing sectors directly (e.g. food and drinks) and indirectly harming manufacturing by damaging service sectors (e.g. logistics) that support it.
- The adverse impacts are for now mainly showing through reduced exports and imports to and from the EU (around 15% less for both, as compared to a no-Brexit scenario), and through some production disruptions.
- The ongoing conﬂicts around Northern Ireland probably represent the biggest risk to UK-EU relations, with the potential to aﬀect the entire TCA in case they escalate.
- Potential beneﬁts from Brexit have yet to be felt: – There has been some redirection of exports towards non-EU countries, but this has not compensated for the reduction in trade with the EU.
- The UK has signed only two truly new trade agreements, with New Zealand and Australia, the former still only ‘in principle’. Both countries account for a small fraction of total UK trade, and the expected beneﬁts of the trade agreements with them are minor. Trade negotiations with the US are currently stalled. Whether there is more progress on the trade front in the future remains to be seen.
- If there is more regulatory divergence from the EU going forward, it will become possible to see whether it will bring beneﬁts or disruptions to UK manufacturers.
- Any beneﬁts that may potentially arise out of Brexit will not happen automatically. The UK needs an active, integrated, and well-funded industrial policy, within a stronger devolution framework, if UK manufacturing is to beneﬁt from future growth opportunities. This is especially the case in the context of net zero, industry 4.0 and levelling up.
- The impact of Brexit on manufacturing is likely to be most profound in regions in the north and midlands. That in turn will make levelling up more challenging.
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