The Guardian recently had an article which sought to explain "Why untangling UK industry from Europe may be 'impossible'".
The article illustrates how cars "built in the UK" actually use materials and components sourced from all over Europe. Assembled in the UK might be a better description of how cars are built using supply chains that stretch across Europe.
The argument put forward by advocates of a hard Brexit, where Britain leaves the EU with a minimal or no trade deal, is that its trade deficit lends it some leverage in negotiations: if cars made by BMW or Volkswagen become too expensive, British customers could simply switch to Nissan or Toyota instead.
The problem is that German car manufacturers no longer build all their cars in Germany, and even if they do, they do not necessarily build them with fully “German” parts. |Link|This reminded me of an older article about the dangers of deep interconnections of the globalized economy, this 2012 economic evaluation looked at how the deep cross-connections make the entire system more vulnerable to shocks... especially unexpected and largely irrational shocks like the Brexit vote.
Here is an excerpt.
This study considers the relationship between a global systemic banking, monetary and solvency crisis and its implications for the real-time flow of goods and services in the globalised economy.
It outlines how contagion in the financial system could set off semi-autonomous contagion in supply-chains globally, even where buyers and sellers are linked by solvency, sound money and bank intermediation.
The cross-contagion between the financial system and trade/production networks is mutually reinforcing.
It is argued that in order to understand systemic risk in the globalised economy, account must be taken of how growing complexity (interconnectedness, interdependence and the speed of processes), the de-localisation of production and concentration within key pillars of the globalised economy have magnified global vulnerability and opened up the possibility of a rapid and large-scale collapse.
‘Collapse’ in this sense means the irreversible loss of socio-economic complexity which fundamentally transforms the nature of the economy. These crucial issues have not been recognised by policy-makers nor are they reflected in economic thinking or modelling.
As the globalised economy has become more complex and ever faster ... the ability of the real economy to pick up and globally transmit supply-chain failure, and then contagion, has become greater and potentially more devastating in its impacts.
In a more complex and interdependent economy, fewer failures are required to transmit cascading failure through socio-economic systems. In addition, we have normalised massive increases in the complex conditionality that underpins modern societies and our welfare. Thus we have problems seeing, never mind planning for such eventualities, while the risk of them occurring has increased significantly. |Link: Trade Off: Financial system supply-chain cross contagion – a study in global systemic collapse, Foundation for the Economics of Sustainability (emphasis added)|We shall see whether Brexit merely ends up being a negotiating strategy allowing the UK to win more concessions from the EU or whether Brexit leads to an unwinding of British society resulting in a massive loss of industry and wealth.