This week: Trade war takes flight, companies consider manufacturing moves and Brexit impacts business.
It was a week when UK Foreign Secretary Boris Johnson unveiled a new – and somewhat unorthodox – business strategy. When challenged at a private reception about the growing disquiet expressed by Airbus and BMW over the direction of travel for Brexit, he replied: “<expletive deleted>
Later in the week, Johnson was despatched to Asia to discuss the upcoming Afghan elections. This hastily-arranged visit meant he missed a crunch vote on a third runway at Heathrow Airport, something he had pledged to oppose. As one commentator put it, “Only Boris Johnson could fly around the world to protest against airport expansion.”
Trade war escalates
The action intensified in the trade war set in motion by U.S. President Donald Trump. Following his opening salvo against China back in March, he extended the scope of his tariffs at the start of June to imports of aluminium and steel from the European Union (EU), Canada and Mexico. The EU responded with a clutch of tariffs aimed specifically at leading Republican politicians. One example is levies on bourbon whiskey from Kentucky, the home state of U.S. Senate majority leader Mitch McConnell. Another is a tariff on the iconic Harley-Davidson motorcycle, which is manufactured in Wisconsin, the home state of House Speaker Paul Ryan.
Harley announced this week that it would move some manufacturing out of the U.S. to avoid EU charges. It plans to increase production at its facilities in India, Brazil and Thailand, explaining that the tariffs could have cost it as much as $100 million. Trump expressed his displeasure – as he is wont to do – in a barrage of tweets, one of which read, “A Harley-Davidson should never be built in another country – never!” and adding, “If they move, watch, it will be the beginning of the end – they surrendered, they quit!”
Given the tit-for-tat nature of the dispute, more action seems likely on the part of the U.S. and the EU.
Given the tit-for-tat nature of the dispute, more action seems likely on the part of the U.S. and the EU. Trump has threatened 20% tariffs on imports of EU-manufactured cars, on “national security” grounds – a justification with which the EU vehemently disagrees. But further action on the part of the EU could prove problematic. Given the global nature of industry, and the interconnectedness of supply chains, it could be difficult to hit U.S. exports without starving European companies of necessary inputs such as U.S. machinery and chemicals.
Deal or no deal?
As the March 29, 2019 deadline for the UK’s departure from the EU looms ever closer, many of Britain’s larger manufacturers are turning up the volume. First, Airbus warned publicly that a no-deal departure – without a frictionless trade agreement – would wreak havoc on the company’s supply chain, and that it would have to consider relocation to elsewhere in Europe.
Then carmaker BMW voiced its concerns, saying it would have to close its four UK plants – which employ more than 7,000 people – if it could not import components quickly and reliably from mainland Europe. Its four UK facilities employ more than 7000 people. Car factories utilize “just in time” manufacturing, where parts arrive at sites only hours before they are needed on assembly lines. This minimizes the stockpiling of components, thereby keeping down costs.
Elsewhere in the UK business world, feel-good stories were few and far between. Shares in Countrywide slumped nearly 30% after it issuing a fresh profit warning, citing a weak housing market, disruption from online competitors and a debt-laden balance sheet. High street favorite John Lewis looks to have fallen out of favor. It warned that profits for the coming year would be “close to zero.” The retailer, which is owned by its 85,000 permanent staff, cited slowing high street sales and a shift to online shopping.
Most global stock markets were down in the week to Thursday’s close. The UK’s FTSE 100 fell 0.87%, while the FTSE World Europe (ex UK) fell 1.21%. Wall Street’s S&P 500 was also down.
Few among us will have missed the fact that we’re currently in the midst of a quadrennial celebration of global soccer. A collective insanity seems to have taken hold in participating nations, manifesting itself in some strange ways. In Mexico, millions of fans - jumping for joy after Hirving Lozano scored a winner against world champions Germany - were thought to have triggered a small earthquake in the country’s capital. And in tiny Iceland, an astonishing 99.6% of television viewers tuned into the game against Argentina.
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