Trump’s tariffs could herald one of the most painful episodes in modern times – here’s why | Ed Conway
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.
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.
Nissan is set to announce a leap in its cost-cutting plans that will see 20,000 jobs go globally, according to reports in Japan.
The carmaker, which employs around 6,000 workers at its sprawling manufacturing operations in Sunderland, had already let it be known last November that 9,000 roles would be going amid weak sales and rising costs.
But Japanese broadcaster NHK said on Monday it expected that total to more than double.
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Nissan, which was yet to comment on the claim, is due to reveal full year results covering the 12 months to March on Tuesday morning.
They are expected to show a net loss of up to £3.8bn due to a series of writedowns on the value of its operations.
They will be the first results Nissan has declared since the appointment of a new chief executive last month.
Ivan Espinosa issued a “significant” downgrade to Nissan’s outlook just three weeks ago.
If the job cuts report is true, it would amount to a 15% reduction in the company’s worldwide workforce.
New models of the Nissan Juke being assembled at the Sunderland plant. Pic:PA
It is not known if the Sunderland production facilities form part of any planned job cuts or production reductions, of up to 20%, that were reported.
Nissan has, on several occasions since Brexit, called the plant’s future into question before proceeding with investment plans.
It has invested £2bn in Sunderland since 2023 alone.
The company secured UK government money this year for a new electric powertrain manufacturing facility in Sunderland.
But a senior Nissan executive, Alan Johnson, warned more aid was needed just last month, arguing that the UK was “not a competitive place” to build cars.
Nissan, like rivals, is facing challenges on many fronts.
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US trade tariffs of 25% on all car imports has exacerbated pressure on its supply chain and sales.
The latter has been struggling due to weaker-than-anticipated electric car uptake.
But the vast majority of its cars made in the UK will be subject to a tariff of just 10% after the UK-US trade deal agreed last week.
It does not currently send Sunderland-made cars to the United States. Most are for export to Europe and the domestic UK market.
The US and China have agreed to slash trade tariffs on each other, a move Donald Trump has said was part of a “total reset” in relations.
The president said the 90-day truce followed “very friendly” talks between the two sides in Switzerland over the weekend and those discussions would continue..
“China was being hurt very badly. They were closing up factories they were having a lot of unrest and they were very happy to do something with us”, he told reporters at the White House.
The breakthrough was announced early on Monday – to the delight of fincial markets – by the leader of the US delegation, treasury secretary Scott Bessent.
US trade representative Jamieson Greer confirmed so-called reciprocal tariffs were now at 10% each.
In real terms, it meant the US is reducing its 145% tariff to 30% on Chinese goods. A tariff of 20% had been implemented on China when President Donald Trump took office, over what his administration said was a failure to stop illegal drugs entering the US.
China has agreed to reduce its 125% retaliatory tariffs to 10% on US goods.
Sector-specific tariffs, such as the 25% tax on cars, aluminium and steel, remain in place.
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Tariffs, taxes on imports of more than 100%, had been imposed on both sides. China was the only country exempt from a 90-day pause on the “retaliatory” tariffs above the base 10% levies applied by America.
Major retailers had been warning Mr Trump of empty shelves as US importers pause shipments.
Mr Bessent said after a weekend of negotiations in Switzerland, the countries had a mechanism for continued talks.
It’s the second major trade announcement made by the US in the last week, after a deal was secured with the UK on Thursday.
The move signals a willingness from the Americans to make deals on tariffs.
Why Trump blinked in US-China trade war
Of all the fronts in Donald Trump’s trade war, none was as dramatic and economically threatening as the sky-high tariffs he imposed on China.
There are a couple of reasons: first, because China is and was the single biggest importer of goods into the US and, second, because of the sheer height of the tariffs imposed by the White House in recent months.
In short, tariffs of over 100% were tantamount to a total embargo on goods coming from the United States’ main trading partner.
That would have had enormous economic implications, not just for the US but every other country around the world (these are the world’s biggest and second-biggest economies, after all).
So the truce announced on Monday by treasury secretary Scott Bessent is undoubtedly a very big deal indeed.
Welcomed news
The news was received positively by Asian stock markets on Monday as major indexes were up.
In China, the Shanghai Composite stock index rose 0.8%, the Shenzhen Component gained 1.7%, and Hong Kong’s Hang Seng index was up nearly 3%.
In countries across Asia, benchmark stock indexes also rose. Korea’s Kospi grew 1.1%, Japan’s Nikkei was up 0.8%, while India’s Nifty 50 index of most valuable companies gained more than 3%.
US stocks rose sharply at the open.
The S&P 500 and tech-heavy Nasdaq saw their biggest leaps in more than a month, rising almost 3% and 4% respectively.
The market rally was visible in Europe too.
The dollar – hit in recent weeks by US recession speculation – was up more than a cent versus the pound while oil prices also rallied. Brent crude, the international benchmark, was 3.5% higher at $66 a barrel.
What next?
When asked by journalists about what the US wanted to see from China in the 90s, Mr Bessent said, “As long as there is good faith effort, engagement and constructive dialogue, then we will keep moving forward.”
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The UK came to the front of the line for deals, Mr Bessent added, “as our oldest ally”.
Switzerland had also moved to the “front of the queue”, he said, while the EU has been slower.
As with the other counties subject to 90-day pauses, a permanent deal will need to be reached, but confidence across the world is likely to have been boosted.
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Businesses now need a clear timetable and roadmap for future negotiations under the newly announced economic and trade consultation mechanism, said Andrew Wilson, the deputy secretary general of the International Chamber of Commerce.
“The credibility of that process for resolving underlying frictions in the Sino-US economic relationship will be mission-critical in terms of restoring business confidence.”
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