The Global Supply Chain Pulse: Inflation, Security Threats, and Brexit's Reset

Inflation figures in the UK have reached a concerning milestone, with the Consumer Price Index hitting 3.5% in April – the highest level in over a year. But as Tony Hines reveals, this official figure masks an even more troubling reality when examining the Retail Price Index at 4.5%, which better reflects everyday expenses by including housing costs and council tax. The distinction between these measurements isn't just economic jargon – it represents a tangible gap between government reporting and the actual impact on consumer wallets.

The vulnerabilities in our increasingly complex supply chains take center stage with revelations about the devastating Marks & Spencer cyber attack, estimated at a staggering £300 million in damages. Meanwhile, the former head of MI6 drops a bombshell warning about Chinese-manufactured green energy infrastructure potentially containing remote "kill switches" that could compromise national security. These developments highlight how cybersecurity and geopolitical tensions have become inseparable from supply chain management decisions.

A significant breakthrough emerges with the UK-EU reset agreement, eliminating £240 million in bureaucratic costs for food exporters by removing the need for export health certificates, plant health certificates, and organic inspections. This pragmatic shift promises to restore trade flows disrupted by Brexit, particularly benefiting Northern Ireland by removing the contentious Irish Sea border for meat products. Meanwhile, the lithium battery industry sees Chinese manufacturer CATL solidify its dominance with a $5 billion Hong Kong listing, even as Honda pivots away from pure electric vehicles toward hybrids in response to consumer preferences. All this unfolds against the backdrop of renewed tariff threats from Trump, who proposes punitive measures against European goods and Apple products manufactured abroad. Subscribe now for weekly insights that help you navigate these complex global supply chain challenges.

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Chapters

• 0:00 Welcome to Change Reaction News
• 1:17 UK Inflation Hits Highest Level
• 4:04 RPI vs CPI: Which Measures True Inflation?
• 6:46 Marks & Spencer Hack Aftermath
• 7:48 Security Threats from Chinese Green Tech
• 9:16 US Customs and Tariff Updates
• 11:31 CATL: The Lithium Battery Powerhouse
• 13:22 Honda Pivots to Hybrid Strategy
• 14:45 UK-EU Reset: Reducing Supply Chain Friction
• 21:33 Trump's New Tariff Threats
• 26:32 Closing and Call to Action

Transcript

Tony Hines: 0:02

Hello Tony Hines, here You're listening to Change Reaction. Thanks for joining us. Great to have you along. Well, this is the news roundup. It's the pulse All things impacting global supply chains this week and there's plenty going on. So stick around, stay tuned and find out more. Change Reaction.

Tony Hines: 0:24

Inflation, rpi, cpi, the measure, news on the hack, marx and Spencer, how they're dealing with it, trump's tariffs again and his new targets. Former head of MI6, sir Richard Dearlove talks about the threat coming from green energy policy. Customs and border protection in the United States, what CATL are doing in China with lithium batteries, honda's new hybrid strategy, trump's attacks on Apple iPhones and Harvard University All in today's programme. Hello, tony Hines here, good to have you along. Well, let's get to it.

Tony Hines: 1:20

Inflation in the United Kingdom has hit its highest level in more than a year. The Consumer Price Index, the CPI, stands at 3.5% in April and that's up from 2.6% in March, and it's the highest since January 2024. Strange to think that the Bank of England put the base rate down when money's losing so much value. The size of the increase was somewhat of a surprise to many. However, we've been predicting on Chain Reaction for some months that it was likely to increase because the government had put up the minimum wage and it put national insurance up on employers, all of which are inflationary. And there's also been Ofgem's energy price cap, which has risen by 6.4% in April, having fallen a year earlier. And again, that's a peculiar one, because energy costs on the world market are actually falling. Strange, isn't it, how the energy prices keep going up the way they do. One might think there's a oligopoly at work. Airfares have also increased by 27.5%, particularly around Easter, and then we've got water bills which have increased and, of course, council taxes, which have all increased during this particular period, and it's likely to go up again, I would think in May, again I would think in May.

Tony Hines: 2:50

The retail price index, which is a better measure for me with regard to inflation than the consumer price index because it takes into account other things, other costs, went up to 4.5%, and that's closer to what it feels like when you go to the shops. The retail price index and the Consumer Price Index, rpi and CPI, are both measures of inflation, but the RPI is sometimes considered a better indicator and this is why it includes housing costs. Rpi accounts for mortgage interest payments and council tax, and the CPI doesn't include those in the measure. Since housing and council tax is a major expense for many, rpi can provide a more realistic view of cost of living changes. The broader scope of RPI covers more items, including some goods and services that the CPI measure omits, making it more reflective of everyday consumer expenses. It's used in wage negotiations and contracts because historically RPI has been used in index-linked wage agreements, pensions and railfare increases, and it has a direct effect on household finance. It reflects the real household impact finance. It reflects the real household impact and that's why RPI is a better representation of the actual experience of inflation.

Tony Hines: 4:10

So you might ask the question why is CPI widely used? Well, I have a theory about this. I think it was introduced to hoodwink people to make them believe that the rate of inflation wasn't quite as bad as it ought to be as it appeared. The CPI is a standard measure used by central banks and governments. If banks like it and governments like it, it's obviously in their benefit to have CPI rather than RPI. It's considered more stable. Cpi tends to be less volatile, and that's because it excludes the mortgage interest payments. Well, that's no reason to use it, is it Just because it's more stable? What that means is it's disguising the volatility that exists in the market.

Tony Hines: 4:56

In the UK, the government has largely shifted to CPI for policy decisions and while the RPI can provide a fuller picture, it's been criticised for methodological weakness. Well, it's often considered that the RPI overstates inflation. It uses something called the Carley formula for those who want a technical explanation, whereas the CPI uses the Jevons formula. Both of these were economists and the Jevons formula is said to be more accurate because it accounts for substitution how consumers might switch to cheaper alternatives when prices rise. The RPI excludes lower income pensioners and highest income households, meaning it doesn't fully represent the entire UK population, and the CPI, however, covers all households. Having said all of this, it's distorted because of those housing costs and the council tax and that's the big one and until those are included in the measure for the Consumer Price Index, the CPI, that measure is not very accurate as a measure of inflation that we experience. The UK government, of course, is already suffering from a backlash from the voters in recent local elections because it lowered the fuel duty allowance paid to pensioners and although there's been hints that it might return that allowance, it's unclear what the amount would be, what the thresholds are and whether it would actually be in time for the winter fuel period. So I think they've tied themselves in quite a cleft stick at the moment with all the taxes and the way they talk about these fiscal rules, which appear to be a straight jacket for what they actually do.

Tony Hines: 6:46

There was further news this week on the hack that was disrupting Marks Spencer, a leading UK retailer. The attack is estimated to have cost the retailer about £300 million, that's about $400 million and it was said to be human error. As to why the breach occurred Something to do with the third-party supplier, I think it's closed down the shopping website at various times and they've been unable to secure supplies in a normal way to fill their shelves, and it's really disrupted the business quite severely over the past month and it's likely to continue until July, we're told, and these cyber attacks are becoming more frequent. Now this is an interesting piece of news Out of the United Kingdom.

Tony Hines: 7:43

This week, the former head of MI6, Sir Richard Dearlove, said that the green energy policy proposed by the Energy Secretary, ed Miliband, is a risk to security because the technology used in wind farms, solar panels, electric cars and other green energy infrastructure is all made in China and it has the capability to impact national security. He went on to say it's so crazy, the whole policy is completely mad. Don't normally say things like that, do these security people? But he has. Why is it such a threat? Well, the Chinese components in some of these products are called kill switches by some, whereby the equipment could just be turned off remotely. Clearly, if you're building a green energy grid, then it's very important that you don't have kill switches, because most of the grid works on a switch mechanism. A spokesman for the Chinese embassy in Washington said that that distorts and smears China's infrastructure achievements. I suppose the important message in this is be careful what you put into your supply chain. Whether it's true or not, you have to be careful about importing risks into the supply chain, and that's a lesson for us all, I think.

Tony Hines: 9:16

Now an article I came across in Flexport this week talks about customs and border protection and they gave some clarification on feeder vessel eligibility for reciprocal tariff in transit exceptions. It was clarified on May 15th that goods on feeder vessels will not qualify for in transit exception to the IE EPA reciprocal tariffs, that even if the cargo was loaded before the cut-off date, it was stated that to qualify for the reciprocal in-transit exemption shipments must have been loaded onto its final mode of transport, that's, the final ocean vessel heading to the cargo's port of destination in the United States before April 5th. To qualify for the baseline 10% reciprocal duty rate, shipments originating from China, hong kong or macau must have been loaded onto its final ocean vessel by april the 9th. And even if a shipment meets the in transit exception requirements based on departure dates, the goods have to arrive and be cleared through us customs by may the 27th. So it'll mean that fewer entries will qualify for this reciprocal in-transit exception and that means that many will be paying higher duties than they'd planned, including retroactive duties that accompany any changes to the filed entries. Importers of course have the option to protest and that's where Flexport could help you. De Minimis is also an issue and they refer to T11. T11 entries are informal entries modified to apply to entries valued at two and a half thousand dollars or less and for those shipments subject to IEPA or section 301 tariffs. The previous shipment value limit for T11 entries was $250. Again, it's all extremely complicated and if you need advice on this then you need to go to somebody like Flexport who will give you detailed advice.

Tony Hines: 11:31

Most people will know about the importance of lithium batteries, but what they won't know is who manufactures those lithium batteries in the main, and, of course, one of the biggest companies involved is a company called CATL C-A-T-L. It raised about $5 billion in a secondary listing in the Hong Kong stock market and it's been the largest share offer this year, but investors have raced to get hold of the stock. It first listed its shares in Shenzhen in China in 2018, but this offering is said to be taking everything to the next level. It's by far the largest firm in the industry. Its production volumes have increased and its closest competitor is BYD, the EV manufacturer, another Chinese company. Catl has 11 manufacturing sites across China. They employ over 100,000 people and it covers about 20 million square meters in total for those plants. They're vertically integrated to keep costs down and they're a driving force in the industry. Volkswagen, toyota and BMW are customers of CATL, and it's got about $60 billion worth of EV batteries that it sells, along with energy storage and battery materials, and it's very profitable. The bigger its turnover, the more profitable it will become. It currently has about $7 billion or thereabouts in profit. It opened its first overseas plant in 2023 in Germany for the big car makers there. So if you haven't heard of CATL, keep an eye out, because they're a big player in this market.

Tony Hines: 13:22

Perhaps Honda have recognised something in demand. And what would that be? Well, evs, fossil fuel cars or hybrids there's your choice. Yeah, hybrids hybrids are the preferred choice by consumers. And why would that be the case? Well, they offer a nod to green energy. They're not as risky as having a pure EV, given the infrastructure and technology requirements, because they use fossil fuel too, so it's a combination. So you've got a two-in-one chance of getting anywhere in a hybrid. And perhaps that's what people wanted. They wanted this flexibility. They don't want the uncertainty and risk that's associated with EVs. And Honda, as a result, has recognised this and cut back its investment in pure EVs because they say demand has slowed, and it's scrapped the target to have 30% of its sales in EVs by 2030, and it's moving towards ramping up sales of hybrid vehicles. Well, are they on to a winner? I think they may be.

Tony Hines: 14:45

The UK government this week reset its arrangements with the European Union, and most people are seeing this as a pragmatic move to reduce friction in supply chains, and in this episode we'll have a special report. The agreement covers multiple areas Trade regulations, fishing rights, defence, cooperation and energy policies. In the food and drink trade, a new sanitary and phytosanitary SPS agreement reduces red tape for food and drink exports, easing trade barriers and potentially lowering food prices and potentially lowering food prices. In fishing rights, the current fishing deal will continue for 12 years with no increase in quotas. In border controls, british passport holders will be able to use more e-gates in Europe, reducing travel delays. And pet travel passports are back, eliminating the need for costly health certificates for UK pets travelling to Europe. In defence and security, the UK defence industry can now participate in the EU's £150 billion Safe Defence Fund, supporting British jobs and carbon tax and steel trade benefits, as UK businesses will avoid the EU's upcoming carbon tax and British steel exports will be protected from new EU tariffs. And youth mobility has also been talked about. Negotiations underway for a scheme allowing young people 18 to 30 to move freely between the UK and the EU for a limited period. And there was also some good news for universities, insofar as the Erasmus scheme is back, the UK will re-enter the Erasmus scheme, which allows students to exchange between the EU and the UK. The agreement overall is expected to boost the UK economy by nearly £9 billion by 2040, but there are critics who argue that certain concessions, such as extended EU fishing rights, may not be in the UK's best interests. Has to be said that fishing is a very small sum in the total economy that's being talked about here.

Tony Hines: 16:59

It's five years since the UK left the European Union and six years since the vote to leave was taken, and SPS the sanitary and phytosanitary regulations for UK farmers and meat producers has been a significant cost. It required export health certificates, with additional financial burdens particularly hitting small and medium-sized enterprises much harder. There have been veterinary checks, increased veterinary inspections, raising costs and also logistical challenges for exporters. There's been administrative red tape with extensive paperwork and compliance requirements, which have disrupted supply chains and reduced competitiveness. There's been trade friction. It's added trade barriers, with a 21% drop in UK food exports to the EU and a 7% drop in imports, and there's also been lost market access. Some UK producers those producing burgers and sausages were previously unable to be sold in the EU due to the regulatory hurdles, but the new agreement aims to restore the trade, so the costs and the barriers and the friction will be eased as a result of this agreement and its potential for boosting the UK agricultural exports is 22.5%.

Tony Hines: 18:27

Since Brexit, the additional trade barriers have contributed billions of pounds in losses across the agricultural sector. £7 billion is the estimated cost to UK households due to post-Brexit trade barriers on food imports from the EU Tens of millions from red tape. According to the British Meat Processors Association, it will mean a 22.5% boost as a result of the new agreement and it's hoped that some lost trade if not all of the lost trade could be recovered. It will help farmers be more competitive. Since Brexit, 1,200,000 export health certificates have been issued. It's taken 2.4 million certifier hours and it's cost the industry £240 million and its cost the industry £240 million.

Tony Hines: 19:21

According to Peter Hardwick, who is trade and policy advisor to the British Meat Processing Association, meat producers have already complied with EU regulations despite not being in the EU, so there'll be absolutely no change in the arrangements which exist. The only thing that will be removed here is the cost, the bureaucracy, the red tape, and that's got to be a good thing. It will also be good news for Northern Ireland because, despite the government's best efforts, the border has remained in the Irish Sea for any meat product travelling to Northern Ireland, because the market for goods has been treated as if it's entering the EU when goods are going to Northern Ireland, and it's been a very contentious point. And, of course, they've had to have these European health certificates at an immense cost and it's caused the trade between the UK and Northern Ireland to reduce. But now, with this arrangement, that border will no longer exist and health certificates will not be required to send goods to Northern Ireland, and that's hoped to restore the trade back to its previous levels. So the bureaucratic nonsense and the additional costs imposed and that hoped to restore the trade back to its previous levels. So the bureaucratic nonsense and the additional costs imposed on everyone sending goods to Northern Ireland will now disappear as a result of this trade agreement, and that has to be good news not only for the meat producers and the farmers, but also for the supermarkets, who've faced very difficult times with the post-Brexit arrangements that have been in place for the past five years. It should also reduce delays at the borders, where we've had and seen many lorries held up because of non-compliance with the paperwork for export certificates and so on. So, in detail, by becoming part of the SPS area for this arrangement, that's, the sanitary and phytosanitary regulations that we've now aligned with the European Union officially through this agreement means that for small and medium-sized businesses and for everybody else, those export health certificates are no longer required and they're about £200 per consignment, which means that a single lorry carrying a mixed load of animal products could see thousands of pounds in additional costs if we had to have those health certificates. And then there are plant health certificates. Businesses have been paying around 25 pounds for each certificate, so you can see the burden that this places on small and medium-sized enterprises. And then there are certificates of inspection for organic products, and those cost 120 pounds per assignment.

Tony Hines: 22:17

Uk agri-food exports to the EU dropped by £14 billion in 2023, while imports from the EU were £43.8 billion, and that left a £29.8 billion trade deficit. So the new UK-EU agreement aims to reduce those costs by removing the routine checks and easing the trade barriers, which will help farmers and food producers regain competitiveness. Those routine border checks previously 100% of paperwork checks and up to 30% physical checks were required for British dairy fish, eggs and red meat. They'll no longer be required. And of course, there was the lost market access for fresh sausages, burgers and certain shellfish, which were banned from EU trade, and it's hoped that they'll be restored too. Seed potatoes will also be allowed to cross the borders once again, and supermarket supply chains had routine checks on fresh produce, which slowed deliveries, increasing cost and reducing availability. So good news for the supermarket and all those people travelling with pets where they had to pay £100 at least for each pet. They'll now be able to have a multi-use pet passport, saving them money if they travel with their pets. So lots of benefits.

Tony Hines: 23:50

Trump, the tariff tyrant at it again Says he'll put 50% tariffs on the European Union. Trump targets tariffs of 25% on Apple iPhones made outside the US. He's the man that knows the cost of everything but the value of nothing. He's also hampering Harvard University's ability to recruit students. I think there's something pathological in his makeup.

Tony Hines: 24:13

Donald Trump has recently announced plans to impose a 50% tariff on all goods imported from the European Union and a 25% tariff on Apple iPhones manufactured outside the US. His justification for these tariffs is rooted in his belief that the EU was formed to take advantage of the US on trade. A claim is repeated multiple times. Of course, there's no basis in this whatsoever. It's completely misleading. But that doesn't seem to bother him. He's quite the master of misinformation or disinformation. Trump argues that the EU has been very difficult to deal with due to trade barriers, vat taxes, corporate penalties and monetary manipulations. You expect Apple to manufacture iPhones in the United States or else face a 25% import tax. These announcements have already caused stock market fluctuations, with Apple shares dropping and European markets reacting negatively. As for the Harvard University situation, trump's administration has also revoked Harvard's ability to enroll international students, which could significantly impact the university's global academic standing. This move aligns with broader restrictions on visa policies and international education, which have been a point of contention in past administrations.

Tony Hines: 25:32

Is there a pathological element here? While it's difficult to assess psychological motivations without direct analysis, trump's aggressive trade policies and unilateral decision-making often reflect a zero-sum approach to economics, where he views trade as a competition rather than a cooperative system. His erratic tariff strategies have historically led to market instability, and some analysts argue that his impulse-driven economic decisions prioritize short-term political gains over long-term stability. Trump proposes extreme tariffs on the EU to begin in a matter of days, and the other thing that's happening at the moment is that the US debt situation is worsening and that's likely to rise with these US trade policies and the various erratic economic decisions and policy matters that have come to the fore.

Tony Hines: 26:32

Well, that's it for this week. I hope you've enjoyed the episode, hope you found out something you didn't know before you began listening, and then it's always worthwhile, isn't it? I'll be back next week with another edition of Chain Reaction. In the meantime, stop by subscribe, if you haven't already subscribed, and you'll be first to know when new episodes are out. I'm Tony Hines. I'm signing off. I'll see you next time. Bye, for now, you've been listening to the Chain Reaction Podcast. Written. Written, presented and produced by tony heinz.