US takes aim at China’s green economy with new tariffs – but why?

Published

1 year ago

May 14, 2024

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There are at least three things Joe Biden’s new tariffs on Chinese goods are intended to achieve.

Interestingly enough, preventing Chinese goods from entering the United States (typically the main purpose of tariffs) is arguably the least important of them.

That’s because the most eye-watering of all the new tariffs – a 100% rate on electric vehicles – is being imposed on a category where China doesn’t really compete all that much. Consider: last year the US imported nearly $19bn worth of electric cars. Of those imports, a mere $370m came from China – less than 2% of the total.

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That’s not to say that China is not already a world leader when it comes to making electric cars.

Right now a large chunk of electric cars being bought in Europe and elsewhere besides are Chinese. You might even be driving one today, because most of the Chinese cars being sold on these shores don’t actually have Chinese badges – like BYD. If you have a Tesla Model 3, a Tesla Model Y, an MGs or a Polestar… you’re driving a Chinese car.

Back when cars were all about their internal combustion engines, China never used to be a motoring manufacturing powerhouse. But thanks in large part to enormous support packages, China has achieved dominance of electric car manufacture.

It has done so in part because it has invested so much not just in making those cars but, even more importantly, in making the batteries inside them – not to mention the chemicals and minerals that go inside those batteries. Look at the global electric vehicle business and China has dominance all the way down the supply chain.

It’s a similar story in much of the green technology sector. China makes the vast majority of the world’s solar panels. It’s staking out a leading position in making wind turbines, not to mention green hydrogen electrolysers and carbon capture technology.

This helps explain why the tariffs announced by the White House today are not just focused on electric cars.

There will also be a doubling of tariffs on solar panels to 50%, as well as further tariffs on steel and aluminium. The justification for the latter two is that Chinese steel and aluminium is produced with more carbon emissions than elsewhere.

They are part of a broader Biden strategy. Many assumed there would be a big shift in economic diplomacy when Mr Biden took over from Donald Trump, and that he would rescind the tariffs and rules the Trump White House imposed on Beijing.

However in reality, the Biden White House has, if anything, doubled down. They have introduced a host of new subsidies on the production of green technology (the Inflation Reduction Act) and semiconductors (the CHIPS Act), fighting China at its game.

The back story here is that the world is on the brink of a new industrial revolution. As countries around the globe push towards net zero, it necessitates a panoply of new industries – to provide the green energy and cleaner products necessary to hit that goal. And the US is determined not to allow China to win the race to build out these new industries. Hence why the White House is now going one step further with tariffs.

Economists dislike tariffs. They fret about what happened in the 1930s, when the global economy slid into depression as countries around the world followed “beggar-thy-neighbour” policies of ever-increasing tariffs. They fear this might happen again, and, frankly today’s tariffs from the White House probably make such an outcome more likely.

So why is this administration, whose Treasury Secretary Janet Yellen is hardly what you’d call a radical economist, going to such lengths? That brings us back to the other two things these new tariffs are intended to achieve.

The first is to do whatever it takes to give the US a fighting chance at competing with China at producing electric cars and solar panels. Today’s measures might be construed as a tacit admission that the subsidies in the Inflation Reduction Act aren’t helping enough in and of themselves. Whether these tariffs help anymore is an open question. China’s lead is extensive. But we’re about to find out what happens when the world’s two economic superpowers pull out all the stops to compete with each other.

The final reason for these tariffs is more prosaic – but it might actually be the most important of all (at least for Mr Biden himself). They are intended as a political message to show how tough he is on China, and to outdo Donald Trump himself. These tariffs are aimed as much at appealing to the American electorate ahead of the election as they are to affect trade with China.

Nonetheless, they will doubtless provoke some tit-for-tat tariffs from China. Trade – and industrial strategy – have never been so dramatic, or interesting.

Business

AA owners line up banks to steer path towards £4.5bn exit

Published

15 hours ago

May 24, 2025

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AA owners line up banks to steer path towards £4.5bn exit

The owners of the AA, Britain’s biggest breakdown recovery service, are lining up bankers to steer a path towards a sale or stock market listing next year which could value the company at well over £4bn.

Sky News has learnt that JP Morgan and Rothschild are in pole position to be appointed to conduct a review of the AA’s strategic options following a recovery in its financial and operating performance.

The AA, which has more than 16 million customers, including 3.3 million individual members, is jointly owned by three private equity firms: Towerbrook Capital Partners, Warburg Pincus and Stonepeak.

Insiders said this weekend that any form of corporate transaction involving the AA was not imminent or likely to take place for at least 12 months.

They added that there was no fixed timetable and that a deal might not take place until after 2026.

Nevertheless, the impending appointment of advisers underlines the renewed confidence its shareholders now have in its prospects, with the business having recorded four consecutive years of customer, revenue and earnings growth.

A strategic review of the AA’s options is likely to encompass an outright sale, listing on the public markets or the disposal of a further minority stake.

Stonepeak invested £450m into the company in a combination of common and preferred equity, in a transaction which completed in July last year.

That deal was undertaken at an enterprise valuation – comprising the AA’s equity and debt – of approximately £4bn, the shareholders said at the time.

Given the company’s growth and the valuation at which Stonepeak invested, any future transaction would be unlikely to take place with a price of less than £4.5bn, according to bankers.

The AA, which has a large insurance division as well as its roadside recovery operations, remains weighed down by a substantial – albeit declining – debt burden.

Its most recent set of financial results disclosed that it had £1.9bn of net debt, which it is gradually paying down as profitability improves.

AA owners over the years

The company has been through a succession of owners during the last 25 years.

In 1999, it was bought by Centrica, the owner of British Gas, for £1.1bn.

It was then sold five years later to CVC Capital Partners and Permira, two buyout firms, for £1.75bn, and sat under the corporate umbrella Acromas alongside Saga for a decade.

The AA listed on the London Stock Exchange in 2014, but its shares endured a miserable run, being taken private nearly seven years later at little more than 15% of its value on flotation.

Under the ownership of Towerbrook and Warburg Pincus, the company embarked on a long-term transformation plan, recruiting a new leadership team in the form of chairman Rick Haythornthwaite – who also chairs NatWest Group – and chief executive Jakob Pfaudler.

For many years, the AA styled itself as “Britain’s fourth emergency service”, competing with fierce rival the RAC for market share in the breakdown recovery sector.

Founded in 1905 by a quartet of driving enthusiasts, the AA passed 100,000 members in 1934, before reaching the one million mark in 1950.

Last year, it attended 3.5 million breakdowns on Britain’s roads, with 2,700 patrols wearing its uniform.

The company also operates the largest driving school business in the UK under the AA and BSM brands.

In the past, it has explored a sale of its insurance arm, which also has millions of customers, at various points but is not actively doing so now.

By recruiting a third major shareholder last, the AA mirrored a deal struck in 2021 by the RAC.

The RAC’s then owners – CVC Capital Partners and the Singaporean state fund GIC – brought the technology-focused private equity firm, Silver Lake, in as another major investor.

A spokesman for the AA declined to comment on Saturday.

Business

US-EU trade war fears reignite as Europe strikes back at Trump’s threat

Published

22 hours ago

May 24, 2025

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US-EU trade war fears reignite as Europe strikes back at Trump's threat

Fears of a US-EU trade war have been reignited after Europe refused to back down in the face of fresh threats from Donald Trump.

The word tariff has dominated much of the US president’s second term, and he has repeatedly and freely threatened countries with them.

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This included the so-called “liberation day” last month, where he unleashed tariffs on many of his trade partners.

On Friday, after a period of relative calm which has included striking a deal with the UK, he threatened to impose a 50% tariff on the EU after claiming trade talks with Brussels were “going nowhere”.

The US president has repeatedly taken issue with the EU, going as far as to claim it was created to rip the US off.

However, in the face of the latest hostile rhetoric from Mr Trump’s social media account, the European Commission – which oversees trade for the 27-country bloc – has refused to back down.

EU trade chief Maros Sefcovic said: “EU-US trade is unmatched and must be guided by mutual respect, not threats.

“We stand ready to defend our interests.”

Fellow EU leaders and ministers have also held the line after Mr Trump’s comments.

Polish deputy economy minister Michal Baranowski said the tariffs appeared to be a negotiating ploy, with Dutch deputy prime minister Dick Schoof said tariffs “can go up and down”.

French trade minister Laurent Saint-Martin said the latest threats did nothing to help trade talks.

He stressed “de-escalation” was one of the EU’s main aims but warned: “We are ready to respond.”

Mr Sefcovic spoke with US trade representative Jamieson Greer and commerce secretary Howard Lutnick after Mr Trump’s comments.

Mr Trump has previously backed down on a tit-for-tat trade war with China, which saw tariffs soar above 100%.

Sticking points

Talks between the US and EU have stumbled.

In the past week, Washington sent a list of demands to Brussels – including adopting US food safety standards and removing national digital services taxes, people familiar with the talks told Reuters news agency.

In response, the EU reportedly offered a mutually beneficial deal that could include the bloc potentially buying more liquefied natural gas and soybeans from the US, as well as cooperation on issues such as steel overcapacity, which both sides blame on China.

Stocks tumble as Trump grumbles

Major stock indices tumbled after Mr Trump’s comments, which came as he also threatened to slap US tech giant Apple with a 25% tariff.

The president is adamant that he wants the company’s iPhones to be built in America.

The vast majority of its phones are made in China, and the company has also shifted some production to India.

Shares of Apple ended 3% lower and the dollar sank 1% versus the Japanese yen and the euro rose 0.8% against the dollar.

Business

British taxpayers’ £10.2bn loss on bailout of RBS

Published

1 day ago

May 23, 2025

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British taxpayers' £10.2bn loss on bailout of RBS

British taxpayers are set to swallow a loss of just over £10bn on the 2008 rescue of Royal Bank of Scotland (RBS) as the government prepares to confirm that it has offloaded its last-remaining shares in the lender as soon as next week.

Sky News can reveal the ultimate cost to the UK of saving RBS – now NatWest Group – from insolvency is expected to come in at about £10.2bn once the proceeds of share sales, dividends and fees associated with the stake are aggregated.

The final bill will draw a line under one of the most notorious bank bailouts ever orchestrated, and comes nearly 17 years after the then chancellor, Lord Darling, conducted what RBS’s boss at the time, Fred Goodwin, labelled “a drive-by shooting”.

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Insiders believe a statement confirming the final shares have been sold could come in the latter part of next week, although there is a chance that timetable could be extended by a number of days.

The chancellor, Rachel Reeves, is likely to make a statement about the milestone, although insiders say the Treasury and the bank are keen to simply mark the occasion by thanking British taxpayers for their protracted support.

A stock exchange filing disclosing that taxpayers’ stake had fallen below 1% was made last week, down from over 80% in the years after the £45.5bn bailout.

The stake now stands at 0.26%, meaning the final shares could be offloaded as early as the middle of next week, depending upon demand.

Total proceeds from a government trading plan launched in 2021 to drip-feed NatWest stock into the market have so far reached £12.8bn.

Based on the bank’s current share price, the remaining shares should fetch in the region of £400m, taking the figure to £13.2bn.

In addition, institutional share sales and direct buybacks by NatWest of government-held stock have yielded a further £11.5bn.

Dividend payments to the Treasury during its ownership have totalled £4.9bn, while fees and other payments have generated another £5.6bn.

In aggregate, that means total proceeds from NatWest since 2008 are expected to hit £35.3bn.

Under Rick Haythornthwaite and Paul Thwaite, now the bank’s chairman and chief executive respectively, NatWest is now focused on driving growth across its business.

It recently tabled an £11bn bid to buy Santander UK, according to the Financial Times, although no talks are ongoing.

Mr Thwaite replaced Dame Alison Rose, who left amid the crisis sparked by the debanking scandal involving Nigel Farage, the Reform UK leader.

Sky News recently revealed that the bank and Mr Farage had reached an undisclosed settlement.

During the first five years of NatWest’s period in majority state ownership, the bank was run by Sir Stephen Hester, now the chairman of easyJet.

Sir Stephen stepped down amid tensions with the then chancellor, George Osborne, about how RBS – as it then was – should be run.

Lloyds Banking Group was also in partial state ownership for years, although taxpayers reaped a net gain of about £900m from that period.

Other lenders nationalised during the crisis included Bradford & Bingley, the bulk of which was sold to Santander UK, and Northern Rock, part of which was sold to Virgin Money – which in turn has been acquired by Nationwide.

NatWest declined to comment on Friday.

A Treasury spokesperson said: “We now own less than 1% of shares in NatWest which is a significant step towards returning the bank to private ownership and delivering value for money for taxpayers.

“We are on track to exit the shareholding soon, subject to sales achieving value for money and market conditions.”