The Back Door and the Passport

The European Union predicts that Britain will become a back door for cheap Chinese cars. The British government, through Jonathan Reynolds, predicts the reverse: no tariffs, cheaper vehicles for British drivers, and no harm to anyone across the Channel. Both forecasts are offered as though the future of this system could be computed. It cannot. But the two forecasts fail in different places, and the important point is that they have each misplaced the sensitivity. The part of the system the EU fears is the stable, predictable part. The part nobody is forecasting is the part poised on a threshold.

Start with the stable part, because it is less frightening than Brussels supposes. A car built in China does not become British by crossing the Channel. Tariff-free trade between the UK and the EU depends on origin, not on the route the goods took. A Chinese-assembled vehicle shipped through Southampton and driven onto a ferry to Calais still carries its origin with it, and the EU’s tariffs still apply. The first character of its identification number will name the region where it was built, whatever port it last left. This system corrects its own errors. A misdeclared shipment is a small perturbation, and customs audits and origin checks damp it out. Fraud happens at the margins, but at the margins it stays. A back door that announces where every guest was born is a door with a porter standing in it.

So is the EU simply wrong? The strongest version of its worry deserves an answer. The fear is not really trans-shipment. It is that Britain, open to Chinese vehicles and already their convenient customer, becomes the place where Chinese manufacturers decide to assemble. A car built in Sunderland or the Midlands with enough local content does qualify as British. It then crosses into the EU on the same terms as any British car. That is a genuine route, and it brings us to the sensitive part of the system.

Whether that route opens depends on a small number of discrete decisions in a few boardrooms: one manufacturer choosing one site in one year. Before the decision there is nothing to see. The cars arrive fully built, the ports function, and the import figures look like ordinary commerce. After it there is a factory, a supplier network, a local MP cutting a ribbon, and a political constituency that makes any later British tariff very expensive to impose. The conditions that tip the choice are almost too small to measure from Whitehall or Brussels: the exchange rate in a particular quarter, a subsidy offered by a rival government, the cost of electricity at one site, a single remark from a minister that an executive reads as a promise. This is a system at a threshold, not a system in equilibrium. The calm of the present import data is not evidence that nothing will happen. It is what the approach to a threshold looks like.

Here the British forecast fails as well. Mr Reynolds’ confidence that open doors bring only cheap cars assumes that today’s flow of finished imports is the permanent state. But the price competition those imports bring to the British market is itself one of the small conditions. It pressures the European and Japanese plants already operating in Britain. Whether that pressure makes them more efficient or makes them leave is not determined by the tariff policy. It depends on the circumstances of each plant, and it cannot be forecast years ahead by anyone, including the people running them.

There is a comedy in this arrangement that a straight analysis misses. Two governments are arguing loudly about a door, while the real event will be a building. Brussels guards the corridor, London insists the corridor leads nowhere, and somewhere a site-selection consultant with a spreadsheet will settle the question for both of them without asking either.

What can be known, then? Not the volume of Chinese cars in Europe in some future year. Any such figure is fiction dressed as arithmetic. What can be known is the shape of the possibilities. In one state Britain remains a market: Chinese cars are sold here, origin rules hold, and the EU’s fear stays theoretical. In the other Britain becomes a production site, and the trade relationship reorganises around that fact. Between the two states there is a cliff, not a slope. The robust policy is therefore not a prediction but a set of preparations. Keep the capacity to change course without humiliation. Make origin enforcement visibly rigorous, so the EU has no reason to retaliate pre-emptively. Treat any investment approach as the decisive event it is, and not as one more favourable headline.

The future of this system will not be revealed in the tariff schedule. It will be revealed the morning a planning application arrives at a council office, filed under an ordinary-sounding company name, and an official stamps it received.