Navigating Trade Tariffs During Brexit
The rising costs associated with Brexit are edging ever closer to industries and consumers alike.
With Brexit looming large, companies are beginning to assess what a drop from the EU means for them. Large companies will not be the only ones impacted by rising costs and impending tariffs as the consumer base will face higher prices. Current deals within the EU keeps international trade at a reasonable tariff rate, however, if the UK leaves, these restrictions fall away, and different organizations begin to apply their tariff rates.
Politics of the matter aside, Brexit will take a heavy toll on many industries including metalworking. Manufacturing costs will rise due to the tariffs affecting imported materials, cost of labor will go up, and the price of the finished product will be higher. The thought of rising costs due to extended tariffs can be frightening, but this doesn’t mean it’s the end of the world. In this article, we will inform you on what you might expect from Brexit regarding this industry, how to navigate these coming tariffs, and what this means for you.
Different restrictions and applied tariffs will result in different outcomes. Manufacturing costs may rise in one area but decrease in another. Trade deals could affect one field but leave another untouched. Attempting to predict what Brexit will cause is nearly impossible as so many outcomes could occur. Understanding what is happening and what this could lead to in the manufacturing industry is an important first step to navigating the new economy. Understand trade tariffs and how they affect your money will help you avoid major pitfalls and financial distress.
WTO Rules Apply
Firstly, what is the WTO? The WTO is the World Trade Organization, a place where 164 countries negotiate trade deals and establish rules and regulations with each other. The EU has established their own set of trade deals within its barriers, but once the UK leaves the EU, WTO rules automatically apply. You can think of the WTO as the bare minimum allowed when it comes to trade deals. If a country doesn’t have an established trade deal with another country, the WTO rules automatically apply to taxation on imports and exports.
In the deal terms hosted by the EU, most imports have a rather low taxation rate. Some industries as low as 2.8% tax on products. Other industries experience a slightly higher tariff on their imports and exports. Once the UK leaves the Union, they will be subject to the WTO rules even when trading within Europe. This could see tariffs as high as 10% on an imported car, or 35% on imported dairy products. Most industries will face these hikes in taxation under WTO rules and will face them almost immediately once Brexit occurs.
The UK government has made strides to protect companies and citizens against this steep shift in trade tariffs. What this means is some industries will have their tax rates cut to 0% in a temporary schedule. Batteries, in the EU, faced a 4.7% tariff rate, but will have 0% tariffs imparted on them for the time being. Once the UK can stabilize itself, it’s presumed that the tariffs will be brought back on items, but not before industries are given time to prepare and the economy steadies itself.
This can all sound rather scary, and the thought of these impending trade tariffs might send a sense of panic. Brexit does not indicate that industries will experience crippling tariff hikes that will destabilize our economy. Some industries might experience a tariff decrease with the WTO rules applied. Once Brexit occurs, trade deals with countries can be enacted that will allow the UK to establish their own tariffs with other countries.
The WTO is a safety net for tariffs and treaties between the 164 member countries. The EU had established their own set of tariffs that each member had to comply with and thus were not subject to the WTO. Once the UK leaves the EU, trade deals that better suit our needs can begin taking shape. This means that any countries that we establish a trade deal with, our imports and exports with them will no longer be subject to the WTO.
Trade deal with countries will allow the UK to establish new tariff rates and possibly grow our economy if handled correctly. After Brexit, the UK cannot alter tariffs with specific countries unless through a trade deal. If the UK wants to lower tariffs on cars from Australia, they can only do so through a trade deal with them.
Establishing trade deals that suit the UK and the country being traded with could help establish the UK as its own economic entity. This could also be a benefit to you as industries that might have high tariff rates under the WTO, could see lower tariffs with specific trade deals.
What Brexit Means for Us and You
Depending on the established tariffs, we could see an increase in manufacturing costs. Necessary imports from external countries could see a tariff rate hike through the WTO. The ability to navigate trade tariffs to find the cheapest cost for the cumstomer. Importing could depend on trade deals established with individual countries. Brexit could be straining but keeping the quality of products high and the cost low is still a priority.
Tariffs established on exports can also lead to a price hike. Customers who bought from us from European countries might see higher pricing on products due to the raised tariffs. Brexit will not only affect citizens in the UK. Customers from external countries may have to deal with raised export tariffs. As mentioned before, it’s impossible to say what effect Brexit will have on every industry.
Facing raised tariff rates is imposing. Paying more for a product solely because the UK established new trade deals can be disheartening. But by understanding what these new tariffs mean and what trade deals affect them, can help ease your mind. Brexit could lead to raised manufacturing costs for companies and in turn, higher prices on products. For customers outside of the UK, imposed export tariffs could be the reason for raised prices.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Geomiq. Examples of analysis performed within this article are only examples. They should not be utilized in real-world analytic products as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of any Geomiq Employee.