Trump’s tariffs could herald one of the most painful episodes in modern times – here’s why | Ed Conway

Published

3 months ago

April 8, 2025

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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.

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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.

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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.

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.

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UK economy figures not as bad as they look despite GDP fall, analysts say

Published

17 hours ago

July 11, 2025

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UK economy figures not as bad as they look despite GDP fall, analysts say

The UK economy unexpectedly shrank in May, even after the worst of Donald Trump’s tariffs were paused, official figures showed.

A standard measure of economic growth, gross domestic product (GDP), contracted 0.1% in May, according to the Office for National Statistics (ONS).

Rather than a fall being anticipated, growth of 0.1% was forecast by economists polled by Reuters as big falls in production and construction were seen.

It followed a 0.3% contraction in April, when Mr Trump announced his country-specific tariffs and sparked a global trade war.

A 90-day pause on these import taxes, which has been extended, allowed more normality to resume.

This was borne out by other figures released by the ONS on Friday.

Exports to the United States rose £300m but “remained relatively low” following a “substantial decrease” in April, the data said.

Overall, there was a “large rise in goods imports and a fall in goods exports”.

A ‘disappointing’ but mixed picture

It’s “disappointing” news, Chancellor Rachel Reeves said. She and the government as a whole have repeatedly said growing the economy was their number one priority.

“I am determined to kickstart economic growth and deliver on that promise”, she added.

But the picture was not all bad.

Growth recorded in March was revised upwards, further indicating that companies invested to prepare for tariffs. Rather than GDP of 0.2%, the ONS said on Friday the figure was actually 0.4%.

It showed businesses moved forward activity to be ready for the extra taxes. Businesses were hit with higher employer national insurance contributions in April.

The expansion in March means the economy still grew when the three months are looked at together.

While an interest rate cut in August had already been expected, investors upped their bets of a 0.25 percentage point fall in the Bank of England’s base interest rate.

Such a cut would bring down the rate to 4% and make borrowing cheaper.

Analysts from economic research firm Pantheon Macro said the data was not as bad as it looked.

“The size of the manufacturing drop looks erratic to us and should partly unwind… There are signs that GDP growth can rebound in June”, said Pantheon’s chief UK economist, Rob Wood.

Why did the economy shrink?

The drops in manufacturing came mostly due to slowed car-making, less oil and gas extraction and the pharmaceutical industry.

The fall was not larger because the services industry – the largest part of the economy – expanded, with law firms and computer programmers having a good month.

It made up for a “very weak” month for retailers, the ONS said.

Business

UK economy remains fragile – and there are risks and traps lurking around the corner

Published

17 hours ago

July 11, 2025

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UK economy remains fragile - and there are risks and traps lurking around the corner

Monthly Gross Domestic Product (GDP) figures are volatile and, on their own, don’t tell us much.

However, the picture emerging a year since the election of the Labour government is not hugely comforting.

This is a government that promised to turbocharge economic growth, the key to improving livelihoods and the public finances. Instead, the economy is mainly flatlining.

Output shrank in May by 0.1%. That followed a 0.3% drop in April.

Ministers were celebrating a few months ago as data showed the economy grew by 0.7% in the first quarter.

Hangover from artificial growth

However, the subsequent data has shown us that much of that growth was artificial, with businesses racing to get orders out of the door to beat the possible introduction of tariffs. Property transactions were also brought forward to beat stamp duty changes.

In April, we experienced the hangover as orders and industrial output dropped. Services also struggled as demand for legal and conveyancing services dropped after the stamp duty changes.

Many of those distortions have now been smoothed out, but the manufacturing sector still struggled in May.

Signs of recovery

Manufacturing output fell by 1% in May, but more up-to-date data suggests the sector is recovering.

“We expect both cars and pharma output to improve as the UK-US trade deal comes into force and the volatility unwinds,” economists at Pantheon Macroeconomics said.

Meanwhile, the services sector eked out growth of 0.1%.

A 2.7% month-to-month fall in retail sales suppressed growth in the sector, but that should improve with hot weather likely to boost demand at restaurants and pubs.

Struggles ahead

It is unlikely, however, to massively shift the dial for the economy, the kind of shift the Labour government has promised and needs in order to give it some breathing room against its fiscal rules.

The economy remains fragile, and there are risks and traps lurking around the corner.

Concerns that the chancellor, Rachel Reeves, is considering tax hikes could weigh on consumer confidence, at a time when businesses are already scaling back hiring because of national insurance tax hikes.

Inflation is also expected to climb in the second half of the year, further weighing on consumers and businesses.

Business

Government to announce new scheme as it ramps up AI adoption with backing from Facebook owner Meta

Published

23 hours ago

July 11, 2025

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Government to announce new scheme as it ramps up AI adoption with backing from Facebook owner Meta

The government is speeding up its adoption of AI to try and encourage economic growth – with backing from Facebook parent Meta.

It will today announce a $1m (£740,000) scheme to hire up to 10 AI “experts” to help with the adoption of the technology.

Sir Keir Starmer has spoken repeatedly about wanting to use the developing technology as part of his “plan for change” to improve the UK – with claims it could produce tens of billions in savings and efficiencies.

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The government is hoping the new hires could help with problems like translating classified documents en masse, speeding up planning applications or help with emergency responses when power or internet outages occur.

The funding for the roles is coming from Meta, through the Alan Turing Institute. Adverts will go live next week, with the new fellowships expected to start at the beginning of 2026.

Technology Secretary Peter Kyle said: “This fellowship is the best of AI in action – open, practical, and built for public good. It’s about delivery, not just ideas – creating real tools that help government work better for people.”

He added: “The fellowship will help scale that kind of impact across government, and develop sovereign capabilities where the UK must lead, like national security and critical infrastructure.”

The projects will all be based on open source models, meaning there will be a minimal cost for the government when it comes to licensing.

Meta describes its own AI model, Llama, as open source, although there are questions around whether it truly qualifies for that title due to parts of its code base not being published.

The owner of Facebook has also sponsored several studies into the benefits of government adopting more open source AI tools.

Mr Kyle’s Department for Science and Technology has been working on its mission to increase the uptake of AI within government, including through the artificial intelligence “incubator”, under which these fellowships will fall.

The secretary of state has pointed to the success of Caddy – a tool that helps call centre workers search for answers in official documents faster – and its expanding use across government as an example of an AI success story.

He said the tool, developed with Citizens Advice, shows how AI can “boost productivity, improve decision-making, and support frontline staff”. A trial suggested it could cut waiting times for calls in half.

My Kyle also recently announced a deal with Google to provide tech support to government and assist with modernisation of data.

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Joel Kaplan, the chief global affairs officer from Meta, said: “Open-source AI models are helping researchers and developers make major scientific and medical breakthroughs, and they have the potential to transform the delivery of public services too.

“This partnership with ATI will help the government access some of the brightest minds and the technology they need to solve big challenges – and to do it openly and in the public interest.”

Jean Innes, the head of the Alan Turing Institute, said: “These fellowships will offer an innovative way to match AI experts with the real world challenges our public services are facing.”