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Leatherbiz Market Intelligence executive summary: • • • • • •
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Threats of tariffs on imports into the US became reality The burden the tariffs impose will be borne in the first phase by US companies that import goods and may even need them urgently The aim of threatening exporting countries to make them compliant will only take effect in the second stage The effect this is having on consumers was clear in a new survey on consumer confidence, which fell to its lowest level since 1952 A 90-day pause was needed to get goods that are already at the border or en route into the country with minimum tariffs This does not explain what was expected from not only excluding China, of all countries, from the 90-day decision, but even increasing tariffs again for this most important trading partner There may be political reasons but if you look at the amount of consumer goods that come to the US from China, it does not look clever economically The globalised economy, which has brought so much prosperity in recent decades, is now under serious threat.
MARKET INTELLIGENCE
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or those who only have to report on the events but are not directly affected by them, it has been a marvellous two weeks. For those who are in any way involved in the global economy, the last two weeks have probably been a nightmare. The fundamental notion that politicians act in the interests, and for the benefit, of their constituents and their people was certainly open to question. The economic and political interdependencies are simply too complex to be dealt with solely by threats and gambles, and this is perhaps especially true when trying to push through certain convictions. Anyone who needs confirmation of this has probably been well catered for in the last two weeks. The threats of tariffs on imports into the US became reality. There were questions over how the tariff rates were calculated and how small islands with no exports to the US could even make it onto the list. It did not seem particularly well thought through, but that does not alter the facts. Perhaps someone then pointed out to the US president that these tariffs will not be borne in the first phase by those he wants to hit, but by the companies in the US that import the goods and may even need them urgently. Even if the president thinks that perhaps factories in the US will eventually produce many products again, he needs to be reminded that this could still take a while. With such a dependence on imports and such a large share of global consumption,
sudden tariff shocks for US consumers and for the domestic economy are not a particularly brilliant idea. The consequences, which were intended to threaten exporting countries and make them compliant, will only take effect in the second stage. Whatever you think of it, one thing is for sure: it will initially cause a great deal of damage. The effect this is having on consumers in the US could be seen last Friday in a new consumer confidence survey, which fell to its lowest level since 1952. Here too, for an economy that is almost threequarters based on consumption, it is not a particularly good idea to point out that medicine always tastes bitter before it helps. Obviously, this conviction did prevail in the government in Washington DC and with the president, because presumably someone was able to explain to him that many US companies would first have to pay tariffs if they wanted to maintain their products, some of which they urgently need to keep their production going. Whether this would have been financially feasible for many companies was perhaps not even tested. In this light, the postponement of tariffs for 90 days for almost all countries except China looks somewhat different. It may be that it is being sold to the public as an ingenious strategic move to negotiate deals, but the truth is that the 90 days are needed first of all to get the goods that are already at the border or en route into the country with minimum tariffs. At the same time, of course, there is the hope of reaching new trade agreements within the three months. It only
took another two days for smartphones, computers and other electronic parts and devices to fall under new conditions and lower tariffs. Golf balls are likely to follow soon and, if we are lucky, golf bags and shoes too. However, someone will perhaps be able to explain to us at some point what was expected from not only excluding China, of all countries, from the 90-day decision, and even increasing tariffs again for this most important trading partner. If you look at the amount of consumer goods and goods as a whole that come to the US from China, it may be politically explainable, but it is probably not very clever economically. Obviously, the president’s advisors did not get through to him so that it could be explained to him that this form of negotiating with the Chinese is not particularly promising. The main problem now will be to find a way out of the deadlock without losing face on either side. In the international financial markets, the waves were certainly high and the stock markets tumbled and rose on a daily basis, depending on the news. By the end of the period, however, there was a growing conviction that little good could be derived from the disputes for the global economy as a whole. The globalised economy with its division of labour, which has brought so much prosperity in recent decades, is now under serious threat. Focusing the debate on China now is of little use, as the US government obviously completely overlooks the extent and intensity of the dependencies that have developed in recent decades. One can certainly understand some of the arguments put forward by the US government and there is certainly a need for discussion. President Donald Trump may well find it inconvenient that he has to negotiate with many people and possibly for a long time, but that is the way things have become on this earth. It is a multidimensional problem and if you just look at the global supply chains in the leather industry, you can see this very clearly. With the big announcements on Liberation Day, April 2, almost all countries were initially shocked. For anyone who had anything to do with raw materials, leather or leather products, it was clear that these tariffs would not be sustainable in any way. At first, of course, everyone saw the rates as an insurmountable barrier to the US markets. Very quickly, however, it became clear that this would first of all, and with the immediate effect, burden importing companies in the US. Nobody was in any way prepared for this and even as Mr Trump was celebrating on stage, the financial markets and members of the leather industry,