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.
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.
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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.
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.
Image: 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 fazed 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.
The owners of New Look, the high street fashion retailer, have picked bankers to oversee a strategic review which is expected to see the company change hands next year.
Sky News has learnt that Rothschild has been appointed in recent days to advise New Look and its shareholders on a potential exit.
The investment bank’s appointment follows a number of unsolicited approaches for the business from unidentified suitors.
New Look, which trades from almost 340 stores and employs about 10,000 people across the UK, is the country’s second-largest womenswear retailer in the 18-to-44 year-old age group.
It has been owned by its current shareholders – Alcentra and Brait – since October 2020.
In April, Sky News reported that the investors were injecting £30m of fresh equity into the business to aid its digital transformation.
Last year, the chain reported sales of £769m, with an improvement in gross margins and a statutory loss before tax of £21.7m – down from £88m the previous year.
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Like most high street retailers, it endured a torrid Covid-19 and engaged in a formal financial restructuring through a company voluntary arrangement.
In the autumn of 2023, it completed a £100m refinancing deal with Blazehill Capital and Wells Fargo.
A spokesperson for New Look declined to comment specifically on the appointment of Rothschild, but said: “Management are focused on running the business and executing the strategy for long-term growth.
“The company is performing well, with strong momentum driven by a successful summer trading period and notable online market share gains.”
Roughly 40% of New Look’s sales are now generated through digital channels, while recent data from the market intelligence firm Kantar showed it had moved into second place in the online 18-44 category, overtaking Shein and ASOS.
The Coca-Cola Company is brewing up a sale of Costa, Britain’s biggest high street coffee chain, more than six years after acquiring the business in a move aimed at helping it reduce its reliance on sugary soft drinks.
Sky News can exclusively reveal that Coca-Cola is working with bankers to hold exploratory talks about a sale of Costa.
Initial talks have already been held with a small number of potential bidders, including private equity firms, City sources said on Saturday.
Lazard, the investment bank, is understood to have been engaged by Coca-Cola to review options for the business and gauge interest from prospective buyers.
Indicative offers are said to be due in the early part of the autumn, although one source cautioned that Coca-Cola could yet decide not to proceed with a sale.
Costa trades from more than 2,000 stores in the UK, and well over 3,000 globally, according to the latest available figures.
It has been reported to have a global workforce numbering 35,000, although Coca-Cola did not respond to several attempts to establish the precise number of outlets currently in operation, or its employee numbers.
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This weekend, analysts said that a sale could crystallise a multibillion pound loss on the £3.9bn sum Coca-Cola agreed to pay to buy Costa from Whitbread, the London-listed owner of the Premier Inn hotel chain, in 2018.
One suggested that Costa might now command a price tag of just £2bn in a sale process.
The disposal proceeds would, in any case, not be material to the Atlanta-based company, which had a market capitalisation at Friday’s closing share price of $304.2bn (£224.9bn).
At the time of the acquisition, Coca-Cola’s chief executive, James Quincey, said: “Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide.
“Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand.
“Costa gives us access to this market with a strong coffee platform.”
However, accounts filed at Companies House for Costa show that in 2023 – the last year for which standalone results are available – the coffee chain recorded revenues of £1.22bn.
While this represented a 9% increase on the previous year, it was below the £1.3bn recorded in 2018, the final year before Coca-Cola took control of the business.
Coca-Cola has been grappling with the weak performance of Costa for some time, with Mr Quincey saying on an earnings call last month: “We’re in the mode of reflecting on what we’ve learned, thinking about how we might want to find new avenues to grow in the coffee category while continuing to run the Costa business successfully.”
“It’s still a lot of money we put down, and we wanted that money to work as hard as possible.”
Costa’s 2022 accounts referred to the financial pressures it faced from “the economic environment and inflationary pressures”, resulting in it launching “a restructuring programme to address the scale of overheads and invest for growth”.
Filings show that despite its lacklustre performance, Costa has paid more than £250m in dividends to its owner since the acquisition.
The deal was intended to provide Coca-Cola with a global platform in a growing area of the beverages market.
Costa trades in dozens of countries, including India, Japan, Mexico and Poland, and operates a network of thousands of coffee vending machines internationally under the Costa Express brand.
The chain was founded in 1971 by Italian brothers Sergio and Bruno Costa.
It was sold to Whitbread for £19m in 1995, when it traded from fewer than 40 stores.
The business is now one of Britain’s biggest private sector employers, and has become a ubiquitous presence on high streets across the country.
Its main rivals include Starbucks, Caffe Nero and Pret a Manger – the last of which is being prepared for a stake sale and possible public market flotation.
It has also faced growing competition from more upmarket chains such as Gail’s, the bakeries group, which has also been exploring a sale.
Coca-Cola communications executives in the US and UK did not respond to a series of emails and calls from Sky News seeking comment on its plans for Costa.
TikTok is putting hundreds of jobs at risk in the UK, as it turns to artificial intelligence to assess problematic content.
The video-sharing app said a global restructuring is taking place that means it is “concentrating operations in fewer locations”.
Layoffs are set to affect those working in its trust and safety departments, who focus on content moderation.
Unions have reacted angrily to the move – and claim “it will put TikTok’s millions of British users at risk”.
Figures from the tech giant, obtained by Sky News, suggest more than 85% of the videos removed for violating its community guidelines are now flagged by automated tools.
Meanwhile, it is claimed 99% of problematic content is proactively removed before being reported by users.
Executives also argue that AI systems can help reduce the amount of distressing content that moderation teams are exposed to – with the number of graphic videos viewed by staff falling 60% since this technology was implemented.
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It comes weeks after the Online Safety Act came into force, which means social networks can face huge fines if they fail to stop the spread of harmful material.
The Communication Workers Union has claimed the redundancy announcement “looks likely to be a significant reduction of the platform’s vital moderation teams”.
In a statement, it warned: “Alongside concerns ranging from workplace stress to a lack of clarity over questions such as pay scales and office attendance policy, workers have also raised concerns over the quality of AI in content moderation, believing such ‘alternatives’ to human work to be too vulnerable and ineffective to maintain TikTok user safety.”
John Chadfield, the union’s national officer for tech, said many of its members believe the AI alternatives being used are “hastily developed and immature”.
He also alleged that the layoffs come a week before staff were due to vote on union recognition.
“That TikTok management have announced these cuts just as the company’s workers are about to vote on having their union recognised stinks of union-busting and putting corporate greed over the safety of workers and the public,” he added.
Under the proposed plans, affected employees would see their roles reallocated elsewhere in Europe or handled by third-party providers, with a smaller number of trust and safety roles remaining on British soil.
The tech giant currently employs more than 2,500 people in the UK, and is due to open a new office in central London next year
A TikTok spokesperson said: “We are continuing a reorganisation that we started last year to strengthen our global operating model for Trust and Safety, which includes concentrating our operations in fewer locations globally to ensure that we maximize effectiveness and speed as we evolve this critical function for the company with the benefit of technological advancements.”