Hard Brexit Report 2022

Running head: BREXIT 1
BREXIT
Student’s name
Institution affiliation
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Abstract
The report discusses the hard Brexit and its relation to the UK, third countries and
industries affected in this case the automobile industry. The report also goes further to
explain and show how Hard Brexit affects Volkswagen an automotive company that
operates in both the EU and the UK and the strategies that Volkswagen can take post
Brexit.

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Introduction
`Hard Brexit has been defined as one of the modes to be used by the UK to
alienate itself from the European Union. There is also the second option, which is Soft
Brexit. The production of car stalls as the risks associated with Brexit accelerate. The
Society of Motor Manufacturers and Traders (SMMT) indicates that the volume of
vehicles produced as of May dropped by 45% mainly because of supply chain worries
due to Brexit (Kuger, 2019). Some of the concerns are costs associated with the
customs will increase, and logjams will be witnessed at critical areas of entry due to
Brexit, and this could jeopardize Britain's just-in-time assembly delivery strategies for
automobile manufacturers could be in jeopardy. Such strategies aim at minimizing
inventory expenses and ensure that firms hum efficiently.
The UK has benefited from the symbiotic relationship with the EU in the
automotive industry. The EU provides 81% of imports and 52.8% of the exports from the
UK (Deloitte, 2017). The lack of an alternative structure could lead to the introduction of
vehicle tariffs of 10% on all passenger automobiles,10-20% on commercial cars, and 3-
4% for automotive parts.
Economic integration
Economic integration refers to a conglomerate of states dedicated to eliminating
trade barriers to facilitate the free flow of commodities between such countries though
each state is entitled to adopting independent external trade policies (Rodrigue,
Comtois, & Slack, 2017). As such, it entails the signing of agreements between states to
allow, to some extent, the flow of labor, capital, and merchandise across their global
borders.
Theory of economic integration
This theory postulates that economic integration is a sophisticated concept
though it can be understood based on theory. Each nation is adapted to engage in
certain activities where it has a comparative advantage (Economics Online, 2019). For
instance, some states are endowed with natural resources, others with labor, and other
capital. In this context, to understand the concept of economic integration, it will be
better to limit this discussion to capital, which represents money for finances and labor
to represent workers.

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Allowing capital and labor to move freely across global borders would enable countries
to capitalize on their comparative advantages (Economics Online, 2019). This will allow
nations that have surpluses in capital to concentrate on economic activities that
consume substantial capital investment, for instance, pharmaceuticals, aerospace, and
cotemporally technologies (Rodrigue, Comtois, & Slack, 2017). This will enable such
countries to export capital-intensive products and subsequently import labor-intensive
commodities. The fact that each country fails to concentrate on labor-intensive
enterprises will lead to an increase in the supply of labor, which will have a subsequent
decrease in wages as there will be more individuals competing for the same
occupations.
Consequently, nations that are richly endowed with labor will concentrate their
economic activities on industries that depend on substantial proportions of labor, for
instance, manufacturing, since labor is cheap (Rodrigue, Comtois, & Slack, 2017).
However, with time, there will be a decrease in labor supply, which will make wages
increase. The state will increase its capital using the profits derived from the exports,
and this will facilitate more investment.
Types of integration
There are different degrees of variations or phases of economic integration. Each
kind of integration marks a specific level of economic integration. It would be imperative
to view economic integration as a continuation where no integration can mark the
complete end as complete economic integration is attained at the other end.
Free trade agreements
Tremendous efforts stemming from economic integration arise today due to the
application of free trade agreements (Rodrigue, Comtois, & Slack, 2017). This forms the
basis of agreements between individual states entailing particular trade issues, for
instance, reduction of tariffs; in this context, tariffs refer to a tax on imported or exported
merchandise. Quotas are also part of trade agreements as they limit the volume of
imports. Countries that are not incorporated in such an arrangement are charged higher
tariffs and other trade barriers (Economics Online, 2019). However, it is imperative to note
that each member state of the agreement maintains its tariffs regarding third parties.