The Brexit debate rages on – the truth ever harder to find over discordant choirs and poorly arranged orchestras amplified through distorted speakers by a media more interested in promoting dramas than a better informed electorate. Three years and three Prime Ministers since the Referendum, the debate may not be any more enlightening but some hard evidence has washed up to illustrate what the next reality may sound and feel like. Last month, I was involved in a story that really illustrates what the impact of tariffs and No Deal may have for all of us…and like some of my best stories it involves a Ukulele! Read on….
I don’t treat myself too often but a big birthday in March prompted a big purchase. After much research, including on-line reviews, and some excellent customer service to seal the deal, I ordered a beautiful, mahogany tenor ukulele with a chrome plated brass resonator from a little Oregon based company, called Sound Smith – the sort of small, specialist passion-company that enthusiasts love to try and support because the passion almost guarantees extra quality and service – and you never know, Sound Smith may turn out to be the new Fender so making this an investment.
Buying direct from the States was always going to present a more interesting customer journey than buying via Amazon but the only uke close to my choice that was available from a store in the UK got thrashed in every comparative review. At purchase price, the Sound Smith was also about 30% cheaper than the poorer sounding equivalent from a store (or online). Over Easter, I sealed the deal.
Then came the email to say they were out of stock and I’d have to wait until the next batch were made up in July. I had no problem with this, especially after the genuine apology from Sound Smith’s CEO Shannon with an offer of some unsolicited freebies for rewarding my patience just confirming this was a company I wanted to support.
The delay did sort out the instrument’s name though – it is a tradition that stringed instruments need to be given a name. The tradition says this helps them find their personality and be inhabited by soul. The delayed arrival via US postal services of an instrument who’s most famous home is an island in the Pacific Ocean (having been taken there by travellers originating for Madiera in the middle of the Atlantic) meant this one had to be called Wilson, after Tom Hanks’ companion in the movie. Little did I realise the epic journey facing Wilson even before an official christening.
At the start of July I got an email from Shannon and Sound Smith saying the parcel was being dispatched. This is where the Brexit lesson began.
A day later, USPS tracking alerted me that Wilson was in Portland and less than 24 hours later getting ready to board a plane having exited US customs in San Francisco. A day later I was alerted that the plane had successfully landed in Heathrow – a five miles from my home. The long wait was nearly over. Or so I thought.
More messages said Wilson had cleared customs but the Google Maps tracker had gone cold. Three days later I got a message to say that USPS has unsuccessfully tried to deliver my parcel – but at 0144am. That didn’t seem right and the only reason for them not putting a card through the door to say how to recover the parcel must have been they didn’t want to wake us up by putting it through a noisy the letter box…that didn’t seem right either. Something had gone wrong.
Four more days later I found out what– like a small child on the US-Mexican border, Wilson had been impounded and caged until I paid an additional ransom for the release. In other words, I had to stump up the Customs tax or tariff, imposed on foreign goods entering the country. I’m not a business and I wasn’t looking to trade on in any way but I still had to pay an extra fee.
The first Brexit lesson sank in. We don’t have a trade deal with the US so therefore there would be a tariff or import tax. This would obviously slow down the exchange – the UK Government had to assess the value of the goods and set the tax or tariff, then send me the bill which I then had to pay before they could release my goods. This was bound to take time but I was shocked that it had taken four times longer for our Government to set and send me the bill as it took Wilson to get from Oregon to London…a business could struggle with operational inefficiencies like that. And it would take even longer if I didn’t pay the tax straight away.
I had anticipated some possible charge but hadn’t thought it would be significant and hadn’t been able to find any way of confirming if this would be the case or how much it may be. I don’t import very often but the uncertainty is by design. The Government don’t set the price until they can inspect the goods and ensure I’m not pretending their something else. I thought a fee may be between 6-10% of the cost or 20% at most like imposing VAT. I wasn’t too concerned when I bought it as Shannon had knocked $75 dollars off the price, the equivalent of the postage to make the purchase more affordable and competitive – as any growing business may consider. On those calculations the better quality imported uke was still competitive against the mass imported poorer quality ones available in the shops tariff free…and my birthday money still just about covered things!
My calculations were wrong…very wrong. Minus postage, my purchase was $219 or £180.59, less when the exchange rate with the dollar was more advantageous in April. The Customs bill was for £102 (or $123.79). That’s an import charge of 56.5% of the original purchase price. Even if the Government refused to recognise the discount I’d negotiated (something UK businesses will be worried about if that is official policy) the tax was 42% of the items RRP.
A No Deal Brexit means EVERY import into the UK will need to go through a process like this. And EVERY exporter will face a similar cost to their customers in terms of time and money. EVERY competitor to a UK business buying or selling across the EU will have a huge advantage of being both faster and cheaper. This is what No Deal means – FACT!
The only alternative is for us to become a nation of smugglers.
When I’d asked myself half a dozen times in differing tones with different sentiments, “How much?” I began to process another Brexit lesson. Wilson’s tax bill wasn’t ‘reasonable’ but based upon someone at UK customs – who evidently knows next to nothing about ukuleles and was either swayed by its beauty or just guessed – making an emotional assessment of its worth. This is why it was impossible for Sound Smith to include it in the cost and pass it on to me at the point of sale (as Amazon might if they pay import taxes) – it was unpredictable. It was equally difficult for me to accurately guess the cost and build it in to my budget. And the estimate when I was researching in March would have changed anyway because of the fluctuations in the exchange rate since then.
This perhaps is less critical to a one off emotional purchase like a birthday present to yourself but if I was say, a hospital accountant buying medical equipment that becomes unaffordable it could be devastating; or for a business trying to compete at the margins, this variation could be bankrupting.
Amazon and Co gmoderate this by importing through various tax havens or buy buying and selling in bulk so reducing the relative cost on each item and the relative bill overall. They also reduce their tax bill to Government’s in the same way by labelling the goods as being from the country they are imported through but some tariffs are still paid and these are passed on to the customer at the point of sale so isn’t visible to the consumer in the way the tariff is if its direct. The Brexit lesson there being, unless you are a big business you’re going to find it even harder to compete than you do now.
Then something else dawned. Where Wilson came from was a factor as well – not just because if it had come from France then it would have been tariff free because we are still just in the EU; or Japan where the EU has just signed a trade deal. Where it came from would also impact on the size of the tariff because this is tit-for-tat politics. If Trump gets protectionist on US cars or farming then Britain would balance this by raising import taxes on US goods to make them more expensive and less popular. What’s more American than a Uke with a resonator – Miley Cyrus sounds less Tennessee.
Now setting aside that we’ve elected Boris Johnson, a man who offends for fun, as our Prime Minister any added uncertainty to cost is bad for business and this “system” makes the pricing of imports / exports based upon how popular mutual trade policies are with respected Governments. That doesn’t sound like business are taking back control of anything from politicians and bureaucrats!
Now I admit, this is a true story that has happened before Brexit – i.e it could have happened anyway. I’ll also admit that is is, potentially possible, at some stage that when we’ve annoyed Europe our Populist, Protectionist buddy Trump will help us out by setting really low Tariffs. It’s also popular we could end up having to take his side in a trade war with China, India or anyone else who stands up to him. More likely again would be he laughs and screws us. Ask the people of Northern Ireland what they think he’ll do after he tried to shut their airplane factories down to protect Boeing.
What’s not open to serious debate is that we do an awful lot of trade now with the EU – our neighbours. And with the rest of the world using EU trade deals we are also opting out of. We also import more than we export. We are also the one’s leaving trade deals so creating our own uncertainty. We are the unstable party. This isn’t good for business planning, certainty, or continuity. That means it isn’t good for investment, prices or jobs.
This isn’t Project Fear. This is a true story with real factual numbers and characters. It’s probably, as the song goes, time to “Wake Up Before We Go Go”. Its still just about not too late.
In the meantime, I’m taking Wilson off to try and write a song about Armageddon.
LOOKING UP! 