When Trump turns up the heat on trade, Americans will feel it too

Until now, the US has tried to avoid hurting consumers when imposing tariffs. From next month, they will be fully exposed

The timing could not be better. On 1 September 1939, German troops crossed the border into Poland, triggering the start of the second world war. Eighty years to the day later, on 1 September 2019, Donald Trump plans to impose a 10% tariff on a fresh range of Chinese imports into the US. If that happens, it will mark the moment when trade’s cold war turns hot.

Make no mistake, the unexpected announcement threatens to have serious consequences. Up until now, the Chinese goods targeted for tariffs have been carefully selected to avoid hurting consumers. That is no longer the case. From next month, almost everything China sends to the US will be affected. In bald terms, that means Americans are going to be paying more for their smartphones, laptops and clothes. Trump boasts that the US is going to be “taxing the hell out of China” but he has got the economics completely wrong. The taxes will be paid by Americans faced with paying more for imports.

With less than 18 months to go before the culmination of the 2020 presidential election race, this is a strategy fraught with risk. Trump is gambling that China’s leader, Xi Jinping, will bow to the pressure and sign a comprehensive trade deal that would provide greater market access for American companies, increase imports of US agricultural products and act to prevent the theft of American intellectual property.

The US president is also using the threat of a full-blown protectionist standoff between the world’s two biggest economies to bully the Federal Reserve, America’s central bank, into further cuts in interest rates. Global tensions were top of the Fed’s list of concerns when it announced a quarter-point cut in official borrowing costs last week. Those tensions have just got a whole lot worse.

Trump also thinks that he will be able to squeeze more trade concessions out of the European Union if he can bring China to heel. Germany – particularly its car industry – has been served notice by the president that it is next.

But the strategy relies on Beijing buckling, something that it has yet to do. China’s initial response to Trump’s announcement – that this is not the way to negotiate – signals that Xi is prepared to play the long game. To be sure, tariffs are hurting the Chinese economy, which is growing at its slowest pace since the early 1990s. But China is still expanding by just over 6% a year, three times as fast as the US.

What’s more, global financial markets were caught completely unawares by Trump’s latest salvo and there was a predictable response to his tweets: tumbling share prices, cheaper oil and a flight into safe havens such as gold.

Xi thinks that turmoil on Wall Street is not necessarily what the president wants in the coming months. China is also waiting to see whether someone with less protectionist instincts wins the race for the White House next year, and whether Republicans shaping up for tight congressional races in 2020 will start putting pressure on Trump to be conciliatory if the US economy starts to slow under the weight of the trade war.

But China will do more than sit back and wait for Trump to reconsider. It has weapons of its own and will announce retaliation: by banning certain US companies from doing business, by limiting the exports of rare earth materials that are crucial for hi-tech US companies, and by raising tariffs on American goods.

How will Trump respond to that? Not by folding, that’s for sure. And that leaves the global economy balanced on a knife edge.

BA pilots should be wary of Willie’s warm words

No adjective appears next to Willie Walsh’s name more often than “pugnacious”. The former pilot, who runs British Airways’ parent company, IAG, rarely shies away from confrontation and usually leaves his opponent nursing a bad headache. Just ask Richard Branson, who once offered him a £1m wager over the future of Virgin Atlantic, only for Walsh to suggest that the stakes be changed to a “kick in the groin”.

The Irishman is rather more conciliatory in the tone he takes with pilots, having served 18 years in the cockpit at Aer Lingus.

With BA facing the prospect of summer strikes by pilots, Walsh spoke of his “huge respect” for the professionalism of his aviators. But he has form for ruthless strikebreaking, both at BA and Aer Lingus, and his underlying message was no less robust for its scrupulous politeness.

He was not involved in pay negotiations, he said, but knew what it was like to sit on both sides of the table.

He claimed he would not have made such a generous offer as a manager (BA has suggested an 11.5% rise over three years), and that, in his days as a union representative, he would have grabbed it and run. When Walsh deploys that kind of rhetoric, it usually indicates that his resolve has hardened.

BA has plenty to lose here, given that strike action could cost it £40m a day. But if summer holidays are disrupted, the carrier may not struggle to make public villains out of the pilots, who tend to earn significantly more than many of their passengers.

BA will also point out that the Unite and GMB unions, which represent less well-paid staff such as cabin crew, have already accepted the airline’s pay offer.

Conciliation talks are continuing, but pilots will know that they are up against a battle-hardened opponent.

Vegan success shows Greggs can roll with a changing market

The vegan sausage roll has acted as rocket booster for Greggs, helping propel it towards a very modern form of retail success as it reaches new customers.

The news that the Newcastle-based company now sells more takeaway coffee in the UK than Starbucks, while only Tesco sells more sandwiches and McDonald’s more breakfasts, is astounding. Hold the McMuffin.

Shareholders are getting a Quorn-and-pastry-funded £35m special dividend, after sales at established stores leapt 10.5% and profits jumped more than 50% to £40.6m in the six months to 29 June. While others are closing shops, Greggs is on track to open its 2,000th outlet in the next few weeks as part of plans for 100 new sites this year.

Six years ago it was another story: the company put a freeze on expansion after a string of profit warnings prompted by falling sales. It seemed customers had tired of lukewarm sausage rolls and tatty stores. An attempt at reinvention with the Greggs Moment coffee shop was a flop, and the company was making more excuses than it was snacks.

But since Roger Whiteside was appointed chief executive in 2013, the chain’s fortunes have been transformed. It’s amazing what careful consideration of the changing desires and behaviour of your customers can do for business.

Bringing Greggs up to date with modern food trends – with porridge for breakfast, fresh salad for lunch and actually decent, ethically sourced coffee, as well as the vegan sausage roll – has brought in punters who never bothered before. Clever use of social media – capitalising on Piers Morgan’s outrage over the meatless savoury snack, for example – has also updated the bakery’s image.

The company’s success on the high street is a prescient lesson for so many retailers who are retreating from stores. If you create something desirable and work out how to communicate with potential customers in a creative modern way, perhaps you too could get on a roll.

The GuardianTramp

Related Content

Article image
Even Trump may ultimately retreat from the cost of the China trade war
The president’s bullish advisers may be taking a hard line, but the chances of a deal are better than they look

Phillip Inman

11, May, 2019 @3:00 PM

Article image
Just like the 1930s, this trade war has the potential to turn nasty
Echoes of that decade are getting uncomfortably loud as Trump imposes tariffs and the eurozone devalues its currency

23, Jun, 2019 @6:00 AM

Article image
On trade wars China is playing a careful game, but it holds more cards than Trump
Beijing knows the US presidents needs at least the appearance of a thriving economy before next year’s election

15, Dec, 2019 @7:30 AM

Article image
Trump vaunts his China trade pact – but some say it’s too little, too late
While a cessation in hostilities is welcome, businesses have a lot of ground to make up, and few expect any further progress

Phillip Inman

11, Jan, 2020 @4:14 PM

Article image
Trump says impeachment could hurt the boom. But he’s hurting it already
The president’s remarks overlook the fact that his tax cuts and protectionism destabilise the very bull market he boasts about

26, Aug, 2018 @6:00 AM

Article image
Europe wants to take the heat out of Trump’s steel war. That might be risky
The EU exports a lot to America, and fears US tariffs. But playing for time may just encourage the president to press on

03, Jun, 2018 @6:00 AM

Article image
Trump’s trade war makes political sense to his base. Rivals must beware
China may have underestimated the president’s determination, and the global fallout from any US ‘victory’ will come later

15, Jul, 2018 @6:00 AM

Article image
Trump latest in long line of protectionists steering US trade policy
Trade tariffs have been a recurrent theme of US history ever since the late 18th century

Larry Elliott

10, May, 2019 @12:21 PM

Article image
America is pulling one way, China the other: will the global economy sink or swim?
Economists are proposing two radically opposed forecasts for global growth. Considering the evidence, it’s hard to side with the optimists

06, Dec, 2015 @7:00 AM

Article image
Fears of global economic slowdown as virus follows trade war
China, and the world, were already burdened by tariffs. Now, some say the coronavirus could undermine fragile growth

Phillip Inman

01, Feb, 2020 @4:00 PM