Unraveling Tariffs: Trade Deficits, Electric Vehicles, and Economic Shifts

What if increasing tariffs is actually widening the trade deficit? On the latest episode of Chain Reaction Podcast, we untangle the complex web of tariffs imposed during Donald Trump's last presidency and explore the surprising economic consequences that followed. We scrutinize Trump's recent proposal to hike tariffs on goods from China, Canada, and Mexico and consider the possible ripple effects, from inflation to tensions in the auto industry. But that's not all—our conversation broadens to encompass pressing cybersecurity issues in the UK, with major financial losses reported due to attacks on businesses. We also shed light on Alan Leighton's return as Chairman of ASDA and discover how groundwater extraction is mysteriously shifting Earth's axis. Our episode concludes with a critical look at the UK Chancellor's budget strategies, with insights from the Confederation of British Industry on employment and growth challenges.

In our second chapter, we shift focus to the electrifying world of electric vehicles, which is currently navigating a stormy market. As major automotive players like Stellantis, Ford, and VW cut jobs amidst declining EV sales, we dissect the reasons behind this trend, including the fierce competition from China's burgeoning EV market. We also consider the UK's potential policy shifts on car tax penalties and why consumers remain hesitant to fully embrace EVs, looking at issues like charging infrastructure and battery concerns. Adding another layer to the discussion, we discuss Toyota's and Volvo's strategies in adapting to the evolving market dynamics. The episode wraps up with a critical industry update: the closure of Stellantis's Luton plant, marking a significant moment in the ongoing saga of the global car industry.

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Chapters

• 0:02 Global Trade Tariff Impact Analysis
• 17:16 Electric Vehicle Market Impact Analysis

Transcript

Tony Hines: 0:02

Hello, tony H, you're listening to the Chain Reaction Podcast all about supply chain advantage. Thanks for dropping by today. Great episode coming your way in just a few moments. Stick around to be tuned to find out more.

Tony Hines: 0:23

In Trump's first term in office, did the tariffs close the trade deficit? Did they achieve the aim? Well, no, they didn't. Actually, despite the tariffs, the US trade deficit grew from $480 billion in 2016 to $653 billion in 2020. And tariffs led to a stronger US dollar, making exports less competitive from the United States, and some multinational companies were able to bypass tariffs by simply moving production around the globe. The trade deficit failed to close due to complex global dynamics, so are we just going to see a repe of that? Well, we'll have to wait.

Tony Hines: 1:07

Donald Trump said this week that he's going to tax goods coming in from China 10% more than the tariffs he's planning to raise on goods coming from Canada and Mexico. He's basically said 25% from Canada or Mexico, with an extra 10% on top if anything is coming from China, so that makes it 35%. It's lower than he previously stated, but it's still a big rise. And I think there'll be some concerns about the tariffs as they come into force, because that could actually put the economy into a slight downturn and, of course, it could be inflationary, on the other hand, because of forcing people to compete for goods which are in short supply, artificially created by the tariffs. But it will create opportunities for some who will find their ways around those tariffs in some way, and there's been some talk about closing the de minimis loophole. That's the loophole whereby about $8,000 worth of goods can be brought in without going through customs checks. So in a single supply, if you've got $8,000 worth of goods coming in, it can avoid the tariff situation, and companies like Temu and Xiyin often operate website businesses that actually use De Minimus to their advantage Both, of course, chinese companies.

Tony Hines: 2:38

Mexican President Claudia Sheinbaum said on Wednesday that Mexico would retaliate if US President-elect Donald Trump followed through with his proposed 25% tariff. She warned it could take out 400,000 US jobs. The Mexican economy minister, marcelo Ibrand, speaking alongside the President, said that there needed to be more regional cooperation and integration instead of a trade war about tariffs, and that this arrangement would appear to violate the USMCA trade deal between Mexico, canada and the United States that we have just talked about. Carmakers in Canada and Mexico and, of course, the United States are concerned. It will eat into their profits, and one estimate says that it will eat about 17% of profits. With Trump's tariffs it's likely to hit automakers hard and, given the fact that many cars are made in Mexico and imported into the United States by American automakers and again from Canada into the US and vice versa, then it's obviously going to affect the auto industry quite badly, I would have thought. But let's wait and see.

Tony Hines: 4:00

I saw some statistics this week that said that businesses in the United Kingdom had lost £44 billion over the past five years because of cyber attacks, and 52% of companies have reported at least one attack. The attacks have cost businesses close to 2% of revenue on average, with companies generating annual revenues over £100 million being the most likely to suffer an attack. So going for the medium-sized and larger businesses rather than small businesses, although small businesses, of course, are not immune to this kind of attack. Something else that caught my eye this week is that the former Chief Executive of ASDA, alan Leighton, is returning to the role as Chairman, and he's replacing the outgoing Chair, sir Stuart Rose. Leighton was the CEO of ASDA between 1996 and 2001, and he also chaired the co-op for almost a decade, so lots of retail experience.

Tony Hines: 4:59

There was a news item in the iNewspaper that caught my eye this week that said that humans have pumped so much water around the earth that it's tilted on its axis by almost 80 centimeters. That's about 32 inches 31 and a half inches to be precise and it's moved to the east, and that's in less than two decades. According to scientists, 2150 billion tons of groundwater were sucked up from beneath the Earth's surface between 1993 and 2010,. According to a study by the Geophysical Research Letters Journal, climate change and new rainfall patterns have pushed up the demand for water, making supplies less reliable, and rising temperatures have increased the number of droughts and the need for irrigation. More generally, the redistribution of water has implications for the planet. There isn't a risk affecting seasons or lengths of days, but perhaps a fraction of a second every few years is what the experts say, and they say it's accelerating, and I think the acceleration is of some concern. So quite interesting. Something we don't think about, isn't? It? Changes to the movement of the planet in that sense, and what the implications could be for that.

Tony Hines: 6:16

Now there's been quite a bit of pushback this week against the Chancellor of the Exchequer in the United Kingdom on the changes in the recent budget and the Chancellor, rachel Reeves, had a tough time from the CBI, the Confederation of British Industry, which speaks on the part of its members, who are businesses, of course, its employers, national insurance costs and increase in wages, which they're concerned about. Eighty major retailers wrote to the Chancellor about the negative impact on inflation, pay growth and the high street, and this week it was the turn of the CBI, whose latest survey found that two-thirds of employers intend to reduce their hiring plans and almost half intend to reduce their headcount by letting people go or not replacing those who leave. But the Chancellor is unlikely to reverse the decisions that she made in the budget, and she did make an incredible statement at the CBI conference, which said she didn't plan to increase taxes on businesses anymore during this term of office. That's a bit like tying your hand behind your back when you don't know what the situation is likely to be, and it's a bit strange to do that. Really, I'm not a fan of these modern announcements in government by chancellors to appease criticism. You either stand your ground and you let things take their course, or you change things when something doesn't work and it's too early to say whether it'll work or it won't work at the moment, but to say there'll be no more taxes in a five-year period, well, that doesn't sound very sensible to me. There's been a lot of publicity for the farmers in the past week about the problem of inheritance tax and the ability of farms to be passed on to the younger generation because of the increase in taxation, and, of course, it's an incredibly hard job.

Tony Hines: 8:12

I think the farmers do, and they do produce food, and food security is important, and actually maintaining the farm in the united kingdom is something that we all support. It keeps food safe, and there are a lot of costs, and the supply chain for farming is a very delicate balance between what the producers receive for the value that they give in developing their businesses and making the food to supply to supermarkets and other businesses, and so I think that delicate balance needs to be reflected in the approach that governments take towards taxation, and I don't think it's been a particularly well-received move by the government to actually introduce that. The argument is that it's fairer, but fairer for whom? That's the question. But one thing is overlooked significantly.

Tony Hines: 9:05

One of the things that's really made farming a lot more difficult in this country is Brexit, and nobody talks about it. Nobody mentions it much, but it certainly has. Ending the common agricultural policy for farmers and the sums of money that they get has significantly changed the balance Since they've left the EU. The government has not stepped up to the plate and adjusted the sums that farmers receive to compensate for what they've lost. The changes have been rolled out too slowly and they're often tied to sustainable farming or green initiatives like get solar panels on your land or have a few wind turbines, and that's not necessarily what farming's about. Farming's about providing food. Yes, I understand we need incentives to get green energy, but you shouldn't conflate the issues. It's not just government's adequate replacement of this cap, but it's a combination of inflation that's damaged the post-Brexit trade situation and all the barriers that have been introduced and the bureaucracy that's actually mushroomed since Brexit, and we still have concerns about the lowering of food standards and imports from around the world. There's been scarce stories, too, about the type of factory farm meats with chlorinated chicken and hormone-treated beef that could be arriving on the shores as a result of a trade deal with America. But I hasten to add, a trade deal with America might be just as far off as rejoining the European Union is Further, I would suggest.

Tony Hines: 10:38

A DHL cargo plane crashed in Lithuania's Vilnius airport this week. It killed the pilot on board and injured three others. It was a Boeing 737-400 jet operated by SWIFT-Air on behalf of DHL, the German logistics company. It was flying from Leipzig airport in Germany and it crashed about 1km north of the runway at 3.30am. Debris was spread around and fire and smoke engulfed the wreckage. No one on the ground was harmed. Terrorism hasn't been ruled out, but at the moment there is no finger or suspicion being pointed anywhere. The plane made a forced landing about one kilometre, just over half a mile from the VNO airport. An investigation is underway to find the cause of the crash.

Tony Hines: 11:37

Now, with Black Friday being on people's minds in the past week or so, it was interesting to read the report that nine out of ten black friday deals last year were cheaper or the same price over the previous twelve months. That was a study done by, which the watchdog warned shoppers, who spent £13.3 billion on Black Friday deals in 2023, that the vast majority of those so-called offers were misleading. They looked at 227 products in the fortnight between the 20th of November and 1st of December this is last year, remember and they found that 92% of them all from 8 of the biggest home and technology retailers, were the same price or cheaper at other times of the year. 60% of deals had been priced at less than half price in the year before the promotion. They also found the reporting of 14 deals supposedly having higher prices hadn't been charged at those higher prices during the previous 12 months. About 40% of the deals were cheaper at other times. It'll be interesting to see what the situation is this year when the numbers come out, and no doubt I'll be reportinges in the car industry this week.

Tony Hines: 13:01

This time in the united kingdom the owner of voxels has announced plans to close the van making factory at luton and that puts about 1100 jobs at risk. Stalantis is the owner, owning brands including citroen, peu, peugeot and Fiat. It's said it's going to combine the electric van production at its other UK plant in Ellesmere Port. They blame the issue on the slowdown in the speed to transition to electric vehicles in the UK. There's growing concern among car manufacturers about EV sales targets, many, including Stellantis, calling for government to do more to boost consumer demand. And of course the incentives that were originally given to people switching to EVs and indeed to hybrids originally have mainly been withdrawn. So there's little incentive for people to go out and take a risk on buying electric vehicles. And, of course, the bad press about the availability of charging points and the distances claimed that can be traveled on a charge. All have put this at some risk. But the targets are the key thing the sales that firms are mandated to achieve as a percentage. The current rules say that EVs must make up 22% of a carmaker's car sales and 10% of van sales, and if they don't meet that then they have to pay £15,000 as a fine. There are flexibilities in the system which allow manufacturers who can't meet the target to buy credits from those that can. Well, it's all too complicated, isn't it? It's a nonsense. All this needs to be far simpler. It needs to be direct incentives and there needs to be little restriction on the growth of evs. There needs to be encouragement. If they want people to switch to evs, there has to be encouragement to do that, but they have to be absolutely certain that the infrastructure is there or there's going to be lots and lots of complaints. But in the meantime, torrid times in the car and van industry. Electric models that had been scheduled for production at luton will now be moved to elsmeer port, which will.

Tony Hines: 15:09

The US budget in 2023 was about 6.1 trillion US dollars, with about 1.7 trillion discretionary and the rest goes on healthcare for the poor and elderly, social security, retirement fund and federal interest payments. It breaks down roughly like this Net interest on the debt is 0.7 trillion, the discretionary spend we just talked about is 1.7 trillion and mandatory items that they have to fulfill 3.8 trillion. So that's how it broke down. According to the US Congressional Budget Office, elon Musk and Vivek Ramaswamy have been charged with looking for efficiencies. The figure being bandied around presently is about $2.1 trillion that they could save, but many think that that's rather ambitious. Ambitious. Congress controls the purse strings and many are concerned as to where the Department of Government Efficiency this new department that Donald Trump is setting up, headed by Elon Musk and Vivek Ramaswamy, fits in, and the interesting thing is it's going to be an 18-month exercise where they look at all the spending, and some of the areas that are of interest for supply chain people, I suppose, are in the procurement areas, where they'll be looking at government procurement contracts, and perhaps that's one of the areas they'll hone in on. They think these processes are too long and too costly, so they're looking for some efficiencies there. So it remains to be seen as to how it will exactly work, but uh well, no doubt we'll find out now.

Tony Hines: 17:16

In the past few weeks we've seen some big losses announced by car industry businesses. Stellantis this week reported in the episode 1,100 jobs to go at the Luton plant, ford cutting 4,000 jobs across Europe, including 800 in the UK. Nissan axing 9,000 jobs globally and it's unclear how this might affect the Sunderland plant. And then we have Bosch, the biggest car parts maker, announcing 5,500 jobs disappearing in Germany, and VW and others also announcing job losses and cutbacks. And it's all to do with the fall in the expected sales of electric vehicles and, of course, the competitive impact of China's rise in the electric vehicle market.

Tony Hines: 18:09

This week the UK government is considering rowing back on its tax imposed on car makers, which is discussed in the episode, and that's penalties that they impose if they don't hit particular targets of output. But it's like the head of Ford in Britain said if the market's not there, you can't just magic up the sales of vehicles. So to be penalized is a double whammy for the car producers. Obviously something needs to be done to stimulate demand and the British government is looking at ways that it might do so. Manufacturers in the UK, of course, have to ensure and there are similar things in place elsewhere but they have to ensure 22 percent of car sales and 10% of van sales are electric or they get fined £15,000, a penalty for each vehicle outside the target, and from January this will rise to 28% for cars and 16% for vans. So the target keeps ratcheting up and it's just crazy really. The government hopes to once again commit to its 2030 targets. This target was set by Boris Johnson when he was Prime Minister in 2020, but it was pushed back to 2035 by Rishi Sunak last year. The 2035 date is seen as far more sensible by most people than the 2030 date, which is going to be extremely tight given the current context in the global environment.

Tony Hines: 19:38

You have to ask yourself why consumers are resisting the switch to EVs, and it's pretty obvious really. The charging infrastructure is not there, it's not working, it hasn't developed and the incentives to purchase are really just not there either. It's all down to conscience, but if you look at the financial incentives, there aren't any at present to actually switch. Yeah, you get at the moment, some exemption from road tax, but that's about it. Really. There's no incentive on the purchase itself, which there was when evs were first introduced. And then there are the stories about the car batteries needing replacing after 10,000 to 15,000 miles, which have circulated around, and if that's the case, you're virtually buying a new car at that point. So you've basically got a limited life car, more limited than traditional fossil fuel cars, and that, of course, is another reason. And then you've got the risk factors on how far the car can travel on one charge, and the manufacturer's claims seem to be much higher than the reality when people get hold of a car and try to drive it the distances that they actually publish. So there's all sorts of things that need sorting out in this switch to electric vehicles. But incentives is the big thing. On the purchase, nobody wants to pay one and a half times the price of their existing replacement fossil fuel car just to save the driving an electric vehicle.

Tony Hines: 21:15

The sale of EVs has already been slowing, with nearly 30% of EV owners globally likely to switch back to petrol cars. That's according to the Financial Times. Toyota is pushing back the start of EV manufacturing in the United States and Volvo has abandoned its targets to produce only electric vehicles by 2030. So sentiment is shifting in the industry. German machine and car parts maker Schaefer is to close its factory in Sheffield. This is all part of a major restructuring. The company said it plans to end production of clutches for manual vehicles because of falling global demand and there is production over capacity. The closure is expected to affect 200 jobs.

Tony Hines: 22:27

Now I came across a very interesting report and piece of work from c intelligence and they'd done some work. It was published on the 12th of november this and they've analyzed the top 13 carriers in each month since 2019 and it's really interesting the findings. They've worked out a simple to understand monthly index, essentially with reliability performance over a longer time frame, and they make the point is the better performance in c trade, a carrier that's first in 50 of trade lanes and eighth in 50 over a-month period, or one that is never first but is third in 100% of the trade lanes over that same period. And to quantify it, from January to September 2024, they developed a composite score for each global carrier and calculated the percentage of times that each carrier ranked first, second and third and so on in a trade lane. Every time they ranked first, they were assigned a score of 1, and every time they ranked second 0.9, and so on till they got down to 0.1, when they ranked 10th in the trade lane. Mers came out top in the composite rankings, having ranked first on a trade lane 16% of the time and within the top three 16% of the time and within the top three 44% of the time. Zim followed, having been ranked first 70% of the time and within the top three 39% of the time. Cma, cgm, msc and PIL rounded out the top five, while one was at the bottom with the lowest composite score. One was ranked first on a trade lane in only 2% of the time and was in the top three 30% of the time. And when you look at this work by Sea Intelligence, you'll see that Hapak Lloyd came out 3rd, 6th, 7th, costco 8th, wanhai 9th, oocl 10th, evergreen 11th, yanming 12th and Wan at the bottom of the pile. So interesting rankings. So thanks to Alan Murphy, ceo of Sea Intelligence, for that great piece of data.

Tony Hines: 24:37

The big news story of the week, of course, in the UK is that the Luton plant closure announced by Stellantis, the Vauxhall brand made there for many years. And of course, anybody that knows about Vans and the history of Vans and so on. They'll know that in March 1905 the Vauxhall company moved to London and it made luxury cars then that vied with Rolls-Royce, mercedes and Hispano Suiza. It was at the top end of the market pre-first world war. But the cars were too expensive and profits turned to losses. In 1925 Vauxhall was taken over by General Motors and they were anxious to compete with Ford. They turned their ideas and attention towards vans, bedford lorries and trucks and vans were a huge success and anybody in a pop group in the 1960s will know all about those Bedford vans. They were the forerunner of the Ford Transit. Many groups travel around in Bedfords and Transits. So Vauxhall and Ford. Without them we may not have had all those successful groups the Rolling Stones, the Beatles and the legacy that they've left in music today. I put it all down to those Luton and Bedford fans. It will be a very sad day indeed if the Luton plant is to close for good. Vauxhall began making cars in the United Kingdom, in London, in 1903 and it opened its Lupin plant two years later, in 1905, and it's been there since then, but under different ownerships of course. It was taken over in 1925 by General Motors, who ran the plant until Stellantis took it over in 2021. Took it over in 2021.

Tony Hines: 26:36

Canada's economy expanded by 1% in the third quarter. The closing oil price this week West Texan crude $68.7 per barrel. That's a 0.3% decrease on the week, and Brent crude $72.82 per barrel A 0.1% decrease. I always think it's interesting Oil prices go down and gas prices at the pump seem to be going up. How does that work? Now?

Tony Hines: 27:06

We've got some great episodes on the Chain Reaction Podcast and we've had a few in the past few weeks. Very interesting conversation I had with Madhu Hosodharga. He's head of AI at Schneider Electric and that's well worth listening to. Lots of good advice, and if you wondered what AI is all about, well, it's about efficiency, optimization and effectiveness. But listen to what Madhu. Well, it's about efficiency, optimization and effectiveness. But listen to what Medu says. It's quite enlightening, I think.

Tony Hines: 27:32

Now don't forget to subscribe to the Chain Reaction podcast. It's free, it doesn't cost anything to subscribe and you'll be first to know when new episodes drop and you'll receive a notification and you'll be able to listen. So you'll be one of the first to listen to the episode. Just go along to the Chain Reaction site and you'll see on the website a follow button by the episodes and just press that. It will take you through to your favourite podcast platform and you can subscribe there. And that's it. Simple as that. Well, that's it for this week. I hope you've enjoyed the News Roundup and I hope you've learned something by listening. I'll be back with the midweek episode and I'll be back again next weekend with another News Roundup. So for now, I'm Tony Hines. I'm signing off. Bye for now, take care, see you next time. You've been listening to the chain reaction podcast, written, presented and produced by tony heinz.