Few industries are as susceptible to the shifting sands of international policy on trade and protectionism as the automotive sector. And never more so than now with the transition to electric vehicles (EVs).
In leading from the front in their determination to phase out the internal combustion engine (ICE), policymakers in both Britain and Europe have got themselves into the most terrible mess.
Home-grown manufacturers have been left woefully uncompetitive against rampant Chinese competition, with hundreds of thousands of relatively well-paid jobs in Europe’s industrial heartlands now at high risk of redundancy.
Across the sector, vehicle manufacturers are warning of plunging profits, factory closures and job losses; a perfect storm of negatives is about to break, and one which with their lofty net-zero ambitions is almost entirely of the politicians’ own making.
For the Government, two related issues have come racing into view. Ministers might even find time to address them if they could for just a moment stop running around like headless chickens spouting platitudes on how terrible their economic inheritance is.
One is whether to follow the US and Europe into imposing swingeing tariffs on Chinese EV manufacturers before they entirely wipe out the Continent’s own legacy automotive companies.
And second, whether to persist with punishing mandates that the industry hasn’t a prayer of meeting for phasing out petrol and diesel vehicles and replacing them with shiny new all-electric alternatives.
Both on price and quality, European car manufacturers are streets behind their upstart Chinese competitors on EVs, yet the EU plans to go all electric by 2035 and is committed to heavy fines against companies that don’t meet thresholds for phasing out ICE models in the meantime.
Imposing tariffs might theoretically give Volkswagen, Stellantis and their like time to play catch up. That they ever will is obviously open to question, but regardless the European Commission has moved ahead with protections including provisional additional tariffs on Chinese producers ranging from 17pc for BYD to 36.4pc for SAIC.
Exquisitely, the level of punishment is linked to the degree of cooperation shown in the EU’s preceding nine-month anti-dumping investigation.
As on virtually everything of importance, Europe is furiously divided over the matter. Retaliatory action against EU member countries with big export markets in China is a certainty. A full-scale trade war, with damaging consequences for industries completely unrelated to autos, is threatened.
Things were due to come to a head this week, when EU member states were scheduled to decide, using qualified majority voting, on whether to make the new tariffs permanent.
At the time of writing, it didn’t look as if those opposed to the tariffs – which included Germany, Hungary and Spain – had sufficient support to be able to block them. Attempts to reach a negotiated settlement with China involving voluntary quotas also seemed to have stalled.
Barring a last-minute deal – or alternatively one of Europe’s major economies changing its mind – it seems likely that the tariffs will take formal effect, leaving the UK with the awkward choice of whether to follow suit.
It is perhaps indicative of Downing Street’s lack of a clear policy agenda in so many areas of government that it is impossible to get a straight answer on where the UK stands.
But for all manner of reasons, it should very definitely resist.
There is not a snowball’s chance in Hades of meeting the new Government’s goals on EV sales without Chinese help. Attempts to bulldoze consumers into buying EVs has in any case met with widespread resistance.
This should scarcely come as a surprise. As things stand, EVs are significantly more expensive than comparable ICE alternatives, and the infrastructure of charging points to service them is still shamefully inadequate.
If you don’t have off-street parking to recharge the vehicle from your household electricity supply, which carries a reduced rate of VAT, EVs are also arguably equally expensive to run.
If forcing consumers to buy EVs, it would be perverse to then deny them the opportunity of acquiring the most competitive models at a reasonable price by imposing excessive tariffs.
So let’s for once use our Brexit freedoms to go our own way by resisting the siren calls of EU-inspired protectionism. Obvious security concerns in opening UK markets to Chinese competition – today’s EVs are data-hoovering computers on wheels – can surely be overcome.
As a quid pro quo for tariff-free trade it might also be possible to persuade China’s leading manufacturers to open production lines and battery factories here in the UK, in much the same way as occurred with Japanese auto firms in the 1980s.
To date, Chinese firms have focused plans for European production facilities on EU member states, particularly Hungary, and on Turkey, which is part of Europe’s customs union and therefore enjoys similar tariff-free trade as member states.
One of the better parts of the UK’s Brexit agreement with the EU was continued tariff-free access for the automotive sector, subject to minimum requirements for European components; as with Hungary and Turkey, Chinese producers could therefore avoid EU tariffs by setting up shop in the UK.
The other big decision the Government needs to make is on the intended pathway for reducing and then banning the sale of new ICE vehicles. The economically rational and logical thing to do would be to abandon the mandate entirely, allowing consumers to make their own decisions on the future shape and mix of the car market.
But that’s not an option for Labour, which is committed to making the mandate more punishing still by bringing forward the date for an outright ban on all new ICE vehicles by five years to 2030.
It’s obvious to anyone with any knowledge of the auto industry that this is completely impractical. The last mandate was never going to be met, so what chance is there for an even tougher one?
With the bulk of the year gone, new registrations are nowhere near meeting the mandate’s requirement for this year of 22pc zero-emission vehicles. In the extreme example of Ford, just 3pc of sales are electric.
The rules allow for carry over into future years, and for trading of quotas among manufacturers, so threatened fines of £15,000 per vehicle for failure to meet the mandate are unlikely this year at least.
Even so, at some stage they have to start biting if they are to ensure compliance. What are the politicians going to do then?
Stand meekly by as manufacturers close plants to meet the rules? Bankrupt already struggling producers by imposing fines they cannot pay? Or perhaps they would prefer to see the fines passed through to the consumer, with the cost of buying a car soaring accordingly.
Politically, the mandate is completely unrealistic. It may take time for Ed Miliband, the Energy Secretary, and Jonathan Reynolds, the Business Secretary, to come to terms with such a climb-down, but climb down they will.
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