FTI Consulting International Trade Bulletin – 5th August
This Week In Trade
The planned replacement for the Royal Yacht Britannia is back in the news with the estimated cost increasing by £100 million in a week. Meanwhile, across the Channel, the EU is seeking to improve its strategic autonomy in semiconductor manufacturing in the face of the continued global shortage ofchips, causing further disruption to the continent’s economic recovery.
FTI’s Key Headlines
Trade Yacht in Choppy Waters
The past couple of weeks have been choppy for Boris Johnson’s plans for a new national flagship to replace the Royal Yacht Britannia. Last week Ben Wallace, Defence Secretary and ‘Shipbuilding Tsar’, called for the nations shipbuilders to ‘muster’ and help the government design and build the new ship. The project, which the government believes can be in the water by the end of 2024, officially started a fortnight ago when up to 100 designers, engineers, shipbuilders and manufacturers were briefed on the ambitious plans.
Yet plain sailing it was not, with eyebrows raised following the dramatic increase in the projected cost to £250 million – a £100 million increase on the procurement notice issued just seven days earlier. Whist the Prime Minister’s rhetoric has it that the yacht will pay for itself “many, many times over” others are not convinced, with the Financial Times branding the project “an expensive folly.” It’s difficult to imagine how this could ever be proven one way or another.
The apparent contradiction that a ship intended to promote global free trade will be sourced exclusively from UK suppliers might lead some to muse on whether the inflated budget is an ironic comment on the cost of protectionism. To try and work around WTO rules on government procurement (rules which, incidentally, the Government only agreed to this year) the ship will be crewed and operated by the Royal Navy, with the initial construction costs being met by the MOD – though quite what it’s military utility will be remains to be seen. And quite how UK trade envoys will be able to extoll the merits of the free market, whilst hosting events on a yacht that is a monument to trade isolationism is presumably a conundrum for tomorrow’s cadre of diplomats to worry about.
EU’s super plan for Semiconductors
The EU has set out its plans to increase its strategic autonomy in semiconductor manufacturing to reduce the continent’s vulnerability to supply chain disruptions and geopolitical risks. The ongoing shortage continues to cause severe disruption for manufacturers around the world, with car makers feeling the pain particularly hard. On Tuesday BMW and Stellantis – the automotive giant responsible for distinguished European brands such as Citroen, Peugeot and Fiat – joined the growing ranks of manufacturers warning that the chip shortages will continue to have implications for factory throughput throughout 2021 and beyond.
The EU has set itself the ambitious goal of doubling its share of the global semiconductor market by 2030 and has allied itself with Intel, with the US company proposing to build a brand new $20bn semiconductor factory somewhere on the continent. While that may sound impressive in isolation, it nevertheless pales in comparison to the planned capital investment of $100bn over the next three years by Taiwan’s TSMC. Moreover, scepticism abounds that the EU’s state-sponsored attempt to grow the European chip industry will be any more successful than its last failed foray into the sector nearly a decade ago.
UK manufacturers are by no means immune to the impact of these shortages, though the Government’s response to date has been muted, with little to compare to the EU plan. While there will be comfort in Downing Street that a new European supplier will eventually offer greater surety of supply, such a reliance hardly fits the post-Brexit model of domestic supply chain resilience.
With the UK Parliament on its Summer recess the FTI Trade bulletin is going out on a fortnightly basis. Our next edition will be published on Thursday 19th August.
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