As of 1 February 2020, the United Kingdom is no longer a member of the European Union (EU). In addition, the agreed transition phase ended on 31 December 2020. With the agreement on the trade and cooperation treaty of 24 December 2020, the European Union and the United Kingdom have established a new basis for economic relations. Overall, the Brexit negotiations between the UK and the EU were difficult, long-lasting and extremely intensive. In the end, however, both parties succeeded in reshaping the future relationship on both the political and the economic level. Nevertheless, it must be stated that Brexit has had a noticeable economic impact on the UK, the EU and Germany - one of the largest economies in the EU. The British automotive industry in particular has been hit hard by Brexit and is facing an uncertain future. Since 2017, the UK has seen a sharp decline in car registrations. By 2020, the UK vehicle market had lost more than 1 million units (-39.4%), with market share falling to 14.1%. German car manufacturers, on the other hand, are the undisputed leaders within the EU with 2.92 million new registrations (25.2% share). The German automotive industry has coped much better with the effects of Brexit than the British carmakers - due to its international dominance.
Table of contents
Table of contents
Table of figures
List of abbreviations
1 Introduction
1.1 Problem definition
1.2 Course of the work
2 Brexit
2.1 Brexit process
2.2 Economic effects for UK
2.3 Economic effects for EU
2.4 Economic effects for Germany
3 Brexit and the automotive industry
3.1 General conditions and sector development - automotive industry
3.2 Brexit: Economic effects for the UK automotive industry
3.3 Brexit: Economic effects for the German automotive industry
4 Conclusion
References
Table of figures
Figure 1 - Export and import of goods and services
Figure 2 - Automobile production UK - Quantities
List of abbreviations
Abbildung in dieser Leseprobe nicht enthalten
1 Introduction
As of 1 February 2020, the United Kingdom is no longer a member of the European Union (EU). In addition, the agreed transition phase ended on 31 December 2020. With the agreement on the trade and cooperation treaty of 24 December 2020, the European Union and the United Kingdom have established a new basis for economic relations. Overall, the Brexit negotiations between the UK and the EU were difficult, long-lasting and extremely intensive. In the end, however, both parties succeeded in reshaping the future relationship on both the political and the economic level.1 Nevertheless, it must be stated that Brexit has had a noticeable economic impact on the UK, the EU and Germany - one of the largest economies in the EU. The British automotive industry in particular has been hit hard by Brexit and is facing an uncertain future. Since 2017, the UK has seen a sharp decline in car registrations. By 2020, the UK vehicle market had lost more than 1 million units (-39.4%), with market share falling to 14.1%. German car manufacturers, on the other hand, are the undisputed leaders within the EU with 2.92 million new registrations (25.2% share).2 The German automotive industry has coped much better with the effects of Brexit than the British carmakers - due to its international dominance.
1.1 Problem definition
Brexit has led to economic effects within the EU and in particular in Great Britain and Germany. In addition, numerous sectors, especially the automotive industry, are affected by the UK's exit from the EU. Against this background, the research question is: Will Brexit result in a slump in the British economy with noticeable effects on the automotive industry? In this context, the hypothesis is: The Brexit did not lead to the predicted economic collapse in the UK. Nevertheless, the Brexit led to economic spillover effects on the EU and Germany. Moreover, economic sector effects can be observed in connection with the Brexit, especially with regard to the British and German automotive industries, whereby the German automotive industry is affected to a lesser extent. In contrast to the German automotive industry, the UK has become less attractive and less important as an automotive and production location due to Brexit.
1.2 Course of the work
Based on the course of the Brexit, the next step is to analyse the economic effects of the UK's exit from the EU. The focus will be on the economic development in Great Britain, within the EU and in Germany. In the further course of the work, the focus is placed on the development of the automotive industry since the exit negotiations. The starting point is on the one hand the general development of the automotive industry and on the other hand the future challenges of the industry. In the last step, the effects of Brexit on both the British and the German automotive industry are discussed. The paper concludes with a summary and an overall conclusion that answers the research question and the hypothesis.
2 Brexit
The term Brexit is a compound artificial word consisting of the terms "Britain" and "Exit", referring to the UK's (England, Scotland, Wales and Northern Ireland ) withdrawal from the EU.3 In the following chapter, the Brexit process is examined, including its economic effects on both the UK and the EU.
2.1 Brexit process
The origin of the Brexit goes back to a referendum by Prime Minister David Cameron, which was aimed at confirming his policy and the UK's retention as a critical member of the EU. However, the referendum had a different outcome than expected. Almost 52% of British citizens voted against remaining in the EU and thus for Britain to leave the community of states. As a consequence, the Prime Minister resigned. The Conservative Party appointed Theresa May as his successor, who was to pave the way for Britain's exit from the EU. In Theresa May's view, this should be done without any ties to EU law and in particular with a focus on the free movement of workers, immigration and regaining3 4 British decision-making sovereignty in all legal matters.5 On 29 March 2017, the United Kingdom submitted its withdrawal on the basis of Article 50 of the Treaty on European Union (TEU). From now on, the withdrawal horizon extends to a two-year withdrawal period, within which the withdrawal must be negotiated. An extension of the withdrawal period is only possible with the consent of all EU states. The first phase of negotiations followed in 2017 and failed, among other things, with regard to the future status of Northern Ireland. The second phase of negotiations began in 2018, in which a first draft of the withdrawal agreement between the UK and the EU was negotiated.6 However, the negotiation phase failed because of the "backstop". The backstop dealt with the external border between the Republic of Ireland as an EU state and Northern Ireland as a territory of Great Britain. Border controls were to be dispensed with, although de facto borders existed. In this context, the contractual solution was that Great Britain would remain in a customs union with the EU and Northern Ireland would remain in the EU's internal market. The conclusion of a trade agreement would invalidate this arrangement at any time.7 These arrangements were rejected by the House of Commons, necessitating an extension of the Brexit deadline in 2019 and leading to the simultaneous resignation of Prime Minister Theresa May. The third phase of negotiations began with Theresa May's successor, Boris Johnson. The modified agreement that Boris Johnson had negotiated with the EU provided for reducing differences between Ireland and Northern Ireland with a focus on tariffs, goods standards and VAT. The "backstop" in its form no longer played a role in the agreement. Subsequently, Boris Johnson held a new general election and obtained a majority in the House of Commons, which, after a vote, allowed for the adoption of the October 2019 withdrawal agreement between the UK and the EU.8 After the withdrawal agreement was ratified by both the EU and the British government, the UK officially left the EU on 1 February 2020. A transition period ensured that bilateral relations with the EU would initially remain unchanged until the end of 2020. This included, among other things, the UK's access to the EU single market, including the obligation to comply with EU requirements and legal obligations of full EU membership. At the end of 2020, the EU and the UK agreed on a successor agreement that ensured duty-free trade, with the UK simultaneously joining the EU Single Market and the Customs Union. Bilateral economic relations will henceforth be governed by a free trade agreement.9
Conclusion: Overall, it can be stated that Brexit is a turning point in the history of the EU. On the one hand, the withdrawal of a member state made it clear that European integration is reversible and, on the other hand, that politics must focus on damage limitation in order to prevent a domino effect in relation to other EU countries.10 Looking at the UK's relationship with the EU, it is clear that it has been problematic from the beginning. The partnership was primarily based on different expectations of the European project. Britain saw the EU primarily as a single market and its benefits for the British economy.11
2.2 Economic effects for UK
In the recent past, there have been predominantly negative economic forecasts in connection with Brexit in various studies by renowned institutes. The authors of the studies have also frequently differentiated between a hard or an unregulated Brexit. In the academic discussion on the subject of Brexit, it became clear that every Brexit scenario is accompanied by losses for the British economy. The harder the Brexit, the higher the losses in gross domestic product (GDP).12 For example, the study by the Bertelsmann Foundation in cooperation with the University of Sussex assumes that in the event of a hard Brexit, the UK would suffer annual GDP losses of €57 billion, which corresponds to 2.4% of GDP.13 The EU Commission expects an overall slowdown in British economic growth. According to forecasts, GDP will only grow by 1.3% in real terms since the Brexit referendum. This is one of the lowest GDP growth rates since the global economic and financial crisis.14 Finally, the ifo Institute assumes in its forecast that Brexit will lead to longterm GDP losses. According to estimates, the UK will suffer a GDP loss of 2.2% per year until 2030.15
Real GDP in the UK rose by only 1% year-on-year in the last quarter of 2020 in seasonally adjusted terms. Overall, a minus of 7.8% had to be recorded with regard to the GDP for 2020, which can be attributed to both the Covid pandemic and the economic effects of the Brexit. The hospitality sector was only able to generate half of its pre-pandemic output. Other sectors of the UK economy recovered slightly, with noticeable growth in construction and manufacturing. Nevertheless, the situation on the labour market deteriorated. The average unemployment rate rose to 5 %. Despite the trade and cooperation agreement between the UK and the EU, forecasts for the British economy remain cautious. Companies (e.g. from the financial sector) are relocating to the EU. UK-based companies are struggling with the bureaucratic hurdles. The International Relations Committee Brexit Task Force's 2020 analysis makes clear that UK GDP could shrink to more than 1% in the medium term. The reasons for this are: the reduction in trade with the EU, net outward migration, a decrease in foreign direct investment and productivity losses.16 Nevertheless, the Brexit has not currently led to the predicted complete economic collapse in the UK. Rather, the Brexit triggered an adjustment process in economic dynamics. Since 2016, GDP has fallen by an average of 1.6% compared to the years before. The primary reasons for this are: declining private consumption, the rising inflation rate as a result of the devaluation of the British pound by approx. 20 % and the associated decline in real income. These factors influence GDP growth.17
Conclusion: Brexit will burden the British economy in the short term, but without triggering an economic collapse. Rather, one must speak of an adjustment process of the British economy that will be less critical in the medium term than the original forecasts.18 The Trade and Cooperation Agreement mitigates the consequences of Brexit. The trade effects are reduced by only 0.9 % compared to if the UK remains in the EU. This corresponds to 23.9 billion euros or 412 euros per capita, as recent calculations by the Ifo Institute show.19
2.3 Economic effects for EU
First of all, it can be stated that the EU is characterised by a common set of values among the member states and that this has been damaged by the UK's withdrawal. With the UK, the EU also loses an innovative member state and the second strongest economy within the EU. In total, 20 % of the EU's economic output will be lost.20 It is a fact that a common EU internal market leads to the member states trading more with each other. Looking at classical foreign trade theory, it is also clear that free trade leads to specialisation and competitive advantages (e.g. reduction of production costs) in the individual countries. For example, the single European market in the UK has contributed to competitive advantages in the production of services, especially financial services. In recent years, this has been reflected in particular in the relatively high trade surplus in financial services from the UK to the EU.21 Financial services account for only 4.5 % of value added in the EU and 6.5 % in the UK alone - within the EU, the UK has the largest financial sector. In fact, the EU accounts for 43 % of UK financial services exports. In the past, London's financial centre has provided a large number of services to EU clients. In the medium term, this ratio will be reversed to the EU's advantage, as banks in particular relocate from the London financial centre to the EU.22
Conclusion: Overall, the EU is an essential market for the UK. Thus, in 2019, approx. 50 % of imports and approx. 47 % of exports are transacted with the EU.23 Nevertheless, the individual EU states are economically intertwined with Great Britain to varying degrees, so that the decline in trade measured in terms of the gross domestic product of an EU state varies from country to country. For the individual EU states, the average export ratio to the UK is between 3 % and 11 %. If other effects, such as a decline in the intensity of competition and advances in innovation, are also taken into account, the economic consequences are significantly higher than just the trade declines mentioned.24
2.4 Economic effects for Germany
For Germany, Great Britain is one of the most important trading partners. The main sectors for German exports to Great Britain include in particular the vehicle manufacturing (36 %), chemical products (15 %), electrical appliances (11 %), machinery (10 %) and other goods (11 %) sectors.25 In 2019 alone, the sum of imports and exports amounted to 117 billion euros. German goods exports to the United Kingdom can look back on a dynamic development. In 2010, German exports of goods amounted to EUR 60 billion and increased to around EUR 94 billion in 2015, which corresponds to an annual growth rate of more than 9%. From 2019 onwards, the momentum in terms of exports drops sharply and amounts to EUR 84 bn. Imports from the UK, on the other hand, have remained constant over time (Fig. 1).26 If Germany were to give up its trade relationship with the UK overnight, the surplus of around 1.3 % of GDP it has generated so far would fall to zero. This corresponds to an economic loss for the Federal Republic of Germany of almost 45 billion euros.27
Figure 1 - Export and import of goods and services
Abbildung in dieser Leseprobe nicht enthalten
Source: Flach, L. et al., Tippe, U., Ökonomische Effekte eines „Brexit“ auf die deutsche und europäische Wirtschaft, 2020, p. 6
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1 cf.https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Europa/Brexit/2018- 12-03-brexit.html, Access on 30.07.2021.
2 cf.B urkert, U. et al, Brexit - the deal is done, und jetzt? Eine erste Zwischenbilanz, 2021, p. 16.
3 cf. Schoof, U. et al., Brexit - Mögliche wirtschaftliche Folgen eines britischen EU-Austritts, 2015, p.
4 cf. Prätzler, R. et al., Brexit-Handbuch für Unternehmen und Berater, 2020, p. 33.
5 cf. Prätzler, R. et al., Brexit-Handbuch für Unternehmen und Berater, 2020, p. 33.
6 cf.https://www.bpb.de/nachschlagen/lexika/das-europalexikon/309392/backstop, Access on 30.07.2021.
7 cf. Prätzler, R. et al., Brexit-Handbuch für Unternehmen und Berater, 2020, p. 35-36.
8 cf. Oberhofer, H. et al., Die Auswirkungen des Brexit auf Österreichs Wirtschaft, 2021, p. 2 ff.
9 cf. von Ondarza, N., Die „Methode Barnier“ - Lehren aus der Verhandlungsführung der EU beim Brexit, 2020, p. 97.
10 cf. Niedermeier, A., Ridder, W., Das Brexit-Referendum - essentials, 2017, p. 41.
11 cf. Schäfer, H.-B., Kämmerer, J. A., Der Brexit zwischen britischem Autonomiestreben und Handelsgewinnen, 2020, p.856.
12 cf.Leinweber, V., Brexit - die konjunkturellen Folgen, 2019, p. 11.
13 cf . Deutscher Bundestag - Wissenschaftliche Dienste, Wirtschaftliche Auswirkungen des Brexits auf Großbritannien (England, Schottland und Nord-Irland) und Irland, 2019, p. 11.
14 cf. Schoof, U. et al., Brexit - Mögliche wirtschaftliche Folgen eines britischen EU-Austritts, 2015, p. 3.
15 cf. Deutsche Bundesbank, Monatsbericht Februar 2021, 2021, p.15-17.
16 cf. Bauknecht, K., von der Ehe, P., IKB-Kapitalmarkt-News - Britische Wirtschaft: Wo bleibt das Brexit-Chaos?, 2020, p. 1-2.
17 cf. Bauknecht, K., von der Ehe, P., IKB-Kapitalmarkt-News - Britische Wirtschaft: Wo bleibt das Brexit-Chaos?, 2020, p. 3-5.
18 cf.https://www.ifo.de/themen/brexit, Access on 30.07.2021.
19 cf. Adam, R. G., Brexit, 2019, p. 323.
20 cf. Capuano, S., Mögliche Konsequenzen des Brexit für die Handelsbeziehungen zwischen Großbritannien und der EU, 2017, p. 6.
21 cf. Kaya, O. et al., Die Folgen des Brexit für das Investmentbanking in Europa, 2017, p. 4. ff.
22 cf. Flach, L. et al., Wie abhängig sind Deutschland und die EU vom Vereinigten Königreich? Produktabhängigkeiten und die Auswirkungen des Brexit, 2020, p. 7.
23 cf. Oster, M., Schlichting, G., Der Brexit: Hintergrund, Entwicklung und erwartete Auswirkungen, 2017, p. 34.
24 cf. Welfens, P. J. J. et al., Makroökonomische BREXIT-Aspekte mit Blick auf Deutschland und EU, 2017, p. 16.
25 cf. Flach. L. et al., Ökonomische Effekte eines „Brexit“ auf die deutsche und europäische Wirtschaft - aktualisierte Einschätzung im Lichte aktueller Entwicklungen, 2020, p. 17-18.
26 cf. Flach. L. et al., Ökonomische Effekte eines „Brexit“ auf die deutsche und europäische Wirtschaft - aktualisierte Einschätzung im Lichte aktueller Entwicklungen, 2020, p. 21
27 cf.KPMG, Die Brexit-Strategie, 2016, p. 6-7.
- Citation du texte
- Maximilian Ludwig (Auteur), 2021, Brexit and automotive Industry, Munich, GRIN Verlag, https://www.grin.com/document/1190416
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