If the EU and Japan can agree on their proposed economic partnership, then the big loser could be UK car manufacturing post Brexit.
The partnership would see the EU dropping the 10 percent import tariff on Japanese-built cars in return for better access to Japan's food market. Ongoing negotiations between the two could produce an agreement by the end of the year, Belgium's foreign minister Didier Reynders told the Nikkei newspaper earlier this month.
If the UK fails to secure tariff-free access to the EU and has to pay a similar 10 percent charge to export, then Japanese automakers might find it cheaper to export some models from Japan to the EU rather than continue to supply Europe from their current stronghold of the UK. Nissan, Toyota and Honda all have significant production operations in the UK.
Even before any tariff decision has been made, Honda has already said it will shift production of its CR-V compact SUV from Swindon, UK, to Japan when the new model arrives in 2018.
Japan is currently looking for export opportunities as local sales shrink, IHS Automotive’s Japan/Korea vehicle forecast head Masatoshi Nishimoto told me back in August. “Exporting has a more important role to maintain domestic production volume for every OEM, because no one can rely on domestic demand,” he said. Japanese passenger car production fell 5.4 percent last year to 7.8 million units as local sales fell 10 percent to 4.2 million, according to local trade association JAMA. In 2015, 16 percent of Japan’s 4.85 million vehicle exports went to the EU.
The big stumbling block to an increase in exports would be the current strength of the Japanese yen, which JAMA has been lobbying the government there to reduce. And the pound’s current weakness will help the UK’s case for keeping production levels as they are. But a change on either side could swing the finance advantage away from the UK and toward Japan, where the idea of reducing excess capacity would play very well indeed.