British Dilemma

Jaguar Land Rover is experiencing some success with reported extra shifts to keep up with demand, expansion to the facility and construction on a new engine plant.  Although recession may be in Britain’s future, great hope is placed on their exports to the fast growing Asian and Latin American countries. The pound has dropped almost a quarter since 2007 and Britain hopes that this situation will mirror its economic standing in the 1990s when devaluation of the pound helped them export their way out of recession. But this time around Britain is to dependent on declining rich-world markets such as Europe and the U.S. Conservative MP, Douglas Carswell described Britain’s exports to Europe as being “shackled to a corpse.” Establishing markets with the emerging economies of Asia and Latin American would be better for Britain in the long term. However, the share of exports going to China, India and Brazil is less than 5%. This is because Britain does not have the large natural-resources endowments or the production of capital goods that these industrializing economies are interested in. Also British firms have been moving slow towards building trade links with these countries because in the past when their domestic economy was booming they were never forced to find customers in other markets.

Britain’s car industry is their one major hope of establishing relationships with these new markets. British car exports to China rose to 23% and sales to India also rose to 67%. If Britain can get its other industries to catch on to the success of Jaguar Land Rover than its export strategy will actually work. This article goes along with are discussion in class about the Asian Tigers export orientated strategy. Although an export strategy might have worked for the Asian Tigers, I’m not exactly sure how much success Britain will have. From this article, it sounds like Britain is relying heavily on its luxury car industry when in the scheme of things Britain does not have a comparative advantage in producing cars, Germany does. I think Britain should focus their efforts on vamping up their manufacturing and financial service industries to meet the need of these new industrializing economies.

Going along with this, the article: In Europe, a Risk-Filled Choice for Britain, goes more into detail about the decline of the British pound. This article states that this decline will be good for British exports because their goods and services will be more of a bargain for foreign buyers and investors. But a cheap currency alone is not enough to keep Britain competitive. This is because the Spain, Ireland, Portugal and Greece have all had to make painful adjustments by the government and industry such as cutting spending, raising taxes and millions lay offs that helped these countries gain competitiveness in the global market (also mentioned in the previous blog). Britain has not made these adjustments to get its finances in order but maybe should have to remain competitive. The author states, “But with exports to China at just 2.8 percent of Britain’s over all output-lagging behind sales to that country by Germany, France and Italy-fulfilling the dream of becoming a high-end industrial powerhouse will require a substantial increase in investment in British industry.” I think that this raises the discussion of what Britain should do. Is it necessary Britain impose harsh economic adjustments like the rest of Europe or should take another route in continuing to build their economy back up? Is the British economy in trouble?