Why the device you’re reading this on shows how Trump’s tariffs could herald one of the most painful episodes in modern times
Of course this is dramatic. Of course markets are slumping.
Because if you take Donald Trump at his word (something investors are now finally beginning to do), he is attempting single-handedly to reverse and uproot decades worth of economic history in the space of a few months.
Because if this really is “the end of globalisation”, as a few politicians, including Keir Starmer, are now calling it, it constitutes one of the most wrenching, painful episodes in modern times.
Money: Petrol prices could tumble within 10 days
To see what I mean, the best place to begin is by pondering the hidden life of the device you’re reading this on. I’m assuming it’s a smartphone, specifically the latest iPhone, but most of the following applies for other smartphones and, indeed, many laptops or desktop computers.
The display was made in South Korea or Japan. The camera module was made by Sony in Japan (who have a particular expertise in this type of specialised silicon that few other companies have been able to match). The batteries (for the latest iPhone at least) are made in India, though these days, the vast majority of the world’s cells are made in China.
On it goes – the memory chips from South Korea, which has a near monopoly on solid state storage silicon. The logic chips – the ones that help the device “think”- made in Taiwan, albeit with intellectual property (IP) from all over the world, including America and even Britain. Some of the chips do indeed come from the US – in particular the modem, though the company behind them (Qualcomm) sometimes manufactures in Taiwan. But there are some from Europe too – most notably the spatial sensor chips that come from Bosch in Germany.
Globalisation is in your hands
If you are looking for an example of “globalisation”, you couldn’t do much better than the smartphone. But even this potted geography lesson understates it because those fabrication plants in Taiwan and South Korea, turning out those silicon chips that help the phone think and remember stuff, are totally dependent on machines made by a company called ASML, based in the Netherlands. Those Dutch machines, in turn, contain components from hundreds of other companies around the world, including in Germany and the US. On it goes.
Nor is this degree of interconnectedness solely to be found in high-tech equipment. The other day, I was up in Scunthorpe at the blast furnaces of British Steel. It turns out the iron they smelt there doesn’t just go into the rails that striate this country. They also make the steel that go into the tracks of Caterpillar trucks.
Trump tariffs latest: UK stock market suffers
Politics latest: Trump tariffs ‘bad news’ for global economy, cabinet minister
That’s right: the iconic tracked diggers – for many people the most American of all things – are all mounted on steel “track shoes” made in the North East of England (the plant is a little further north of Scunthorpe, in Skinningrove).
The further you look around the world of manufactured products, the more you realise that nearly everything you touch on a daily basis has, in the months before it arrived in your life, been on a long trip from factory to factory, taking it all around the world. That device you’re reading this on may say “made in China” on the back, but that’s an enormous over-simplification. It was made more or less everywhere.
This is the way the world works today – like it or not. In a sense it’s the ultimate extension of what Adam Smith discussed back in the earliest days of economics, when he described a “pin factory” where the work of making a simple pin was divided up between different people, with each worker specialising in a particular task rather than trying to make the whole pin themselves.
The swings and roundabouts of globalisation
Today, we have a sort of international division of labour. Today, nearly everyone goes to China to get their batteries. They go to South Korea to get their memory chips. The upshot is these factories have become ever more efficient at making their products. And – here’s where it matters for the rest of us – the price of making and buying this stuff goes down.
Today, the reason one can buy what would once have been classified as a supercomputer for a few hundred pounds is because of this division of labour. Globalisation made everything, from computers to Caterpillar trucks to T-Shirts, that bit cheaper than they would have been had we attempted to manufacture them all in a single country.
Trader Christopher Lagana. Pic: AP
But the ugly side of this economic shift is that those regions that used to do the manufacturing – be it the “rust belt” of America or the Midlands and North East of England – have seen much of their traditional work disappear. And while economists have insisted that cheaper products make everyone better off in net terms, the reality is that these parts of our countries haven’t got better off. They have been hollowed out. And in time, resentment about globalisation has built up – for good reason.
Trump’s aspiration
This is the world we inhabit today. Unpicking it will be phenomenally difficult and phenomenally expensive. Trying to relocate all those functions – factories and labour markets with expertise that has built up over decades – would be incredibly difficult and would take a long time. But that seems, as far as anyone can tell, to be the aspiration of Donald Trump. That appears to be the objective of his tariff policy.
Up until now, most investors had assumed that the president wasn’t entirely serious about this – that he merely intended to scare a few Asian companies into opening factories in key swing states. And who knows – that may well turn out to be the case. But he certainly seems more serious this time around – and less phased by the negative market reaction.
In the meantime, we are left with those tariffs.
Costs will go up
Think back to that iPhone. Think back to those Caterpillar tracks. All those components now face swinging tariffs when they arrive in the US. That will push up the cost of buying pretty much anything in the US and will accordingly push down the demand for those goods. And since America is the world’s consumer of last resort – the biggest importer of goods anywhere – that has an enormous bearing on demand around the world.
So, yes, of course, this is dramatic. Of course, markets are slumping. No one knows what the US president will do next. But either way, what happened last week in the Rose Garden will reverberate for a long time to come.
Shares in meal delivery platform Deliveroo have surged by 17% as investors react to news of a £2.7bn takeover proposal.
The company revealed after the market had closed on Friday that it had been in talks since 5 April with US rival DoorDash.
Deliveroo suggested then it was likely the 180p per share offer would be recommended, though full terms were yet to be agreed.
Money latest: Vet hits back at critics of prices
At that price, the company’s founder and chief executive, Will Shu, would be in line for a windfall of more than £170m.
Deliveroo further announced, before trading on Monday, that it had suspended its £100m share buyback programme.
The opening share price reaction took the value to 171p per share – still shy of the 180p on the table – and well under the 390p per share flotation price seen in 2021.
Deliveroo’s shares have weakened nearly 50% since their market debut.
The deal is not expected to face regulatory hurdles as it provides DoorDash access to 10 new markets where it currently has no presence.
But a takeover would likely represent a blow to the City of London given the anticipated loss of a tech-focused player.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “If the deal is done at that price, the company will fail to shake off the ‘Floperoo’ tag it was saddled with after its disastrous IPO debut in 2021.
“Even though Deliveroo has finally broken through into profitable territory, the prolonged bout of indigestion around its share price has continued.
“The surge in demand for home deliveries during the pandemic waned just as competition heated up. Deliveroo’s foray into grocery deliveries has helped it turn a profit but it’s still facing fierce rivals.”
She added: “The DoorDash Deliveroo deal will be unappetising for the government which has been trying to boost the number of tech companies listed in London.
“If Deliveroo is purchased it would join a stream of companies leaving the London Stock Exchange, with too few IPOs [initial public offerings] in the pipeline to make up the numbers.”
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports1 year agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business3 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway