WHEB Commentary

Ted Franks

Trump and the trade war – June Monthly

In the depths of February two of us went on a research trip to a logistics trade fair. One of the presenters held up a small pineapple from the Caribbean. He marvelled that it was available on UK supermarket shelves for £1. The cost just for sending it as an individual item, he said, would have been over £5.

Such is the connectedness of international trade. Shops are full of things which have travelled huge distances, selling for low prices. It’s not just food. We take it for granted that we can easily access the latest technologies from US, fashion from Europe, and cars from Japan. We are presented with a range and quality of products that previous generations couldn’t imagine.

And we can buy them at low prices. Not just in the advanced economies of Europe, but everywhere. Trade has been a key reason why the cost of a reasonable standard of living has fallen all around the world. In many regions, increases in wealth and wellbeing would have been impossible to replicate otherwise.

But trade is also messy and complicated. In the first year of high school, economics pupils learn that two countries both benefit from trading with one other. However, an overall net positive disguises tensions underneath the surface. Within those countries there are likely to be both winners and losers.

Perhaps more importantly, there will be people that feel like winners, and people who feel like they have lost. The many and complex causes of inequality are ignored. As we are seeing now, resentment can turn into political backlash.

President Donald Trump doesn’t seem to have time for complicated explanations. His conviction in the evils of international trade has been with him for forty years. It has remained despite the international expansion of his property business. It is now bolstered by a group of advisors from the fringes of economic thought. And he is putting his belief into action.

It started small. In January, he approved targeted measures on solar panels and washing machines. In the Spring these skirmishes broke into broader conflict. Citing national security concerns, the Trump administration has slapped tariffs on its oldest and closest allies. The manner in which he did so has forced them to respond.

So, at the start of this month, the world has been dragged into a trade war. But the long-term target for President Trump and his acolytes has always been China. So the tariffs and other measures targeting China are potentially on an significantly larger scale.

It is possible that this is all bluster and negotiating tactics. But even so, the damage to global trade is already tangible. The current US administration has, in a memorable phrase, “weaponised uncertainty”. Business confidence and investment is reduced as a result.

We feel exposed, especially in the resource efficiency and sustainable transport themes. Sustainability is a global challenge; the responses are global too. If there is such a thing as a model company in those themes, it would be a globally exporting manufacturer. A company that makes something special that improves sustainability, and sells that product around the world.

Sentiment has shifted against such names this month. Our top ten negative contributors in the period earn an average of 63% of their revenues outside their home country. Industrials was the weakest sector in the benchmark during June.

So how severe is the threat?

In the short-term, it could be quite a challenge. For sure, sentiment will take a while to recover. And there will be lots more twists and turns.

With a long-term view, we’re sanguine. Already the chorus of complaint from industry is growing. When economic growth is hit, the pressure will grow. And turning back the tide of connectedness in the era of digital communications, is a project worthy of Canute[i] himself.

[i] For those readers unfamiliar with King Canute, he was a 10th century King of England who unsuccessfully attempted to command the incoming tide to halt.

Recent posts

  • Tesla; our view – August Monthly
  • Another chance to hear the presentations from WHEB’s 2018 Annual Investor Conference
  • How can we make impact investing more accessible?
  • The future of healthcare
  • Lenzing AG – A case study in investor engagement from WHEB’s Annual Investor Conference
  • The heatwave and climate change; how do we adapt? – July Monthly
  • Trump and the trade war – June Monthly
  • Tivity Health; new portfolio holding – May Monthly
  • China Longyuan; the story so far – April Monthly
  • Smurfit Kappa and the war on plastic – March Monthly
  • Archive

  • September 2018 (2)
  • August 2018 (4)
  • July 2018 (1)
  • June 2018 (1)
  • May 2018 (1)
  • April 2018 (2)
  • March 2018 (2)
  • February 2018 (1)
  • January 2018 (1)
  • December 2017 (3)
  • November 2017 (1)
  • July 2017 (3)
  • June 2017 (1)
  • May 2017 (1)
  • April 2017 (1)
  • February 2017 (2)
  • November 2016 (1)
  • August 2016 (1)
  • July 2016 (1)
  • June 2016 (1)
  • May 2016 (1)
  • April 2016 (2)
  • February 2016 (1)
  • December 2015 (1)
  • November 2015 (3)
  • October 2015 (1)
  • September 2015 (1)
  • July 2015 (2)
  • April 2015 (2)
  • February 2015 (2)
  • December 2014 (2)
  • November 2014 (3)
  • October 2014 (4)
  • August 2014 (1)
  • July 2014 (3)
  • June 2014 (1)
  • April 2014 (2)
  • March 2014 (2)
  • February 2014 (3)
  • January 2014 (4)
  • December 2013 (4)
  • October 2013 (5)
  • September 2013 (3)
  • July 2013 (4)
  • June 2013 (2)
  • May 2013 (4)
  • April 2013 (2)
  • March 2013 (4)
  • February 2013 (6)
  • January 2013 (2)
  • December 2012 (3)
  • November 2012 (1)
  • October 2012 (4)
  • September 2012 (2)
  • August 2012 (1)
  • July 2012 (3)
  • June 2012 (3)
  • May 2012 (6)
  • April 2012 (4)
  • March 2012 (5)