The automotive industry currently finds itself at the nexus of a few of the biggest issues in trade – the drive towards net zero carbon emissions has put pressure on manufacturers to switch to electric vehicles (EVs), while Chinese overcapacity in EV manufacturing is stoking trade tensions and rising protectionism.
Issues like these were at the heart of the Society of Motor Manufacturers and Traders’ (SMMT) International Automotive Summit held earlier this week (25 June), where we spoke to CEO Mike Hawes about how carmakers were handling this new reality.
‘Pressure on us’
For premium, luxury and sport cars, Hawes says, manufacturers based in the UK “exploit what markets they can, but it’s about making that trade easier”. That means “making sure we have trade agreements that are as free and fair as possible”.
“There’s a global rise in protectionism – concerns about China and its products, their ability to make products more cheaply perhaps. That puts pressure on us to address our competitiveness, and that’s where we should always start.”
These tensions include the recent imposition of 100% tariffs on Chinese EVs, while the EU has imposed its own, much lower tariffs.
The UK, he notes, is not currently following suit, and he suggests that “no one really wins” in the “more protectionist environment” that’s developing.
Tariff talk
Hawes is keen to differentiate between the US and EU approaches to Chinese EV competition. The 100% US tariff is “pretty much saying we don’t want your vehicles here”, he says, “but Europe is not saying that”.
“Europe is trying to say, ‘You can access our market, but we’re trying to level the playing field – your companies have had a degree of support that ours have not.’
“There are rights and wrongs of that, but [the EU have] had a long investigation with lots of evidence and that’s the conclusion they’ve drawn. Now, Brussels and China are having a dialogue on [the tariffs’] appropriateness, which is good.”
Car manufacturers remain uncertain about the implications of the protectionist winds that are blowing despite the shift towards dialogue last week, he notes:
“Automotive manufacturing has generally been very wary about this because they’ve got investments in China, but they also see the concerns about global trade and putting up barriers.”
The view from the UK
The UK’s approach should not be to just adopt the EU tariffs, Hawes argues.
“We should determine our own arrangements,” he suggests, with our own investigation into Chinese anticompetitive practices. Whether there is harm specifically to UK manufacturers should be determined, he adds.
“You need the evidence – that’s why we have the Trade Remedies Authority. If complaints are being made to government, that’s the route for them to be redressed.”
Chinese manufacturers have suggested, Hawes says, that the Chinese government should raise tariffs on high displacement engine vehicles, which was “maybe directed” at premium cars.
While this may be largely aimed at German exporters, it could “sweep up the UK as well”, with sellers of larger vehicles like Bentley, Rolls Royce, Aston Martin, Jaguar Land Rover and others potentially affected.
The tit-for-tat trade dispute between the EU and China could have a knock-on effect on the UK then:
“There is a risk to our sector in the UK of collateral damage.”
The future
On the home front, the automotive industry is keeping an eye on the coming general election. Should Labour win, Hawes says, he hopes to see its government “support the industry”.
“There are two [aspects to that]: making sure we’re competitive and facilitating global trade. There are obviously boundaries, but certainly they’ll want to see this industry prosper. The dialogue we’ve had thus far has suggested they will be supportive of the industry.”
In practical terms, Hawes says, that means he’d like to see a reopening of trade talks with Canada after they were suspended earlier this year.
Critical minerals
It also means completing the formal accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Ongoing talks with South Korea and Mexico should be “developed through to fruition”.
The future of the UK’s automotive supply chain also relies on securing supply to critical minerals at a “fair and competitive price”. Resilience is crucial, Hawes says, and requires relationship-building with countries supplying those minerals.
The most important thing on trade, however, remains “that relationship with Europe”.
“Labour talks about a closer relationship with Europe, and that would be something we’d support. From a regulatory viewpoint, we generally follow European rules.
“It’s our biggest export market by some distance – if we export 80%, 60% of that goes to the rest of Europe. In terms of supply chains and import as well, it’s the most important relationship. It’s something that needs to be improved if we can. The obstacles are political rather than fundamental.”
Image courtesy of SMMT