When US treasury secretary Steven Mnuchin threatens to impose tariffs on a country’s car industry if it taxes American tech giants, you are inclined to believe that he means it. “If people want to just arbitrarily put taxes on our digital companies,” he said, “we will consider arbitrarily putting taxes on car companies.”
A trigger-happy White House, steeped in trade disputes with various economic competitors, needs little excuse for retaliation. So the British government’s plan to impose a 2% sales tax on the largest digital companies – ensnaring the likes of Google, Amazon, Facebook and Apple – provides all the excuse President Donald Trump needs.
With Trump fresh from a bloody fight with the Chinese over import tariffs that had escalated to the point of plunging US manufacturing into recession, it is understandable that many trade economists believe his appetite is satiated, at least for the moment. But this may be to underestimate Trump on the issue of the tech giants, even if an America First view of trade often means clobbering one’s own side as much as the opposition.
US soya growers and livestock farmers suffered steep declines in export sales after they were effectively locked out of China. A moratorium last year was only partially observed, and Trump was forced to pour much of the money earned from import tariffs into Treasury coffers for compensation payments in the agricultural sector.
An import tariff is effectively a tax on goods entering the country and is supposed to give a boost to domestic firms, whose goods become relatively cheaper. But the tariff is paid by the importer, so increases costs for domestic manufacturers that use foreign-made parts.
Mnuchin has been Trump’s loyal lieutenant through all these battles. The former Goldman Sachs partner and Yale University graduate knows the art of the deal, probably better than his boss. It was Mnuchin who travelled to Beijing in 2017 with trade negotiator Robert Lighthizer to kick off the battle with China’s president, Xi Jinping, starting with a 30% tariff on Chinese solar panels imported into the US.
Mnuchin is understood to have been the one who reined in Lighthizer’s demands that Beijing open its markets wider to the west and crack down further on state subsidies. He could see how much US firms that relied on imports from China were hurting.
Yet it was only this month that the administration agreed to ease off and work on a phase one peace deal, and this happened only after some tangible concessions from the other side had been agreed.
British firms are already paying punitive US tariffs following a spat between the US and Brussels over subsidies for aeroplane maker Airbus. A scattergun approach by the White House in the wake of the Airbus ruling saw the Scotch whisky industry punished last year with a 25% import tariff on bottles of single malt.
In threatening to slap tariffs on the UK car industry, Mnuchin is well aware that it is in a difficult bind, with Brexit threatening exports and the need for hefty investment in electric and hybrid vehicles. The US accounts for around £8bn a year of the UK’s automotive exports.
There is honour in not being bullied by the US. But when the French have told Mnuchin they are prepared to delay a similar digital tax, the argument for the UK to delay begins to strengthen.
Mnuchin has conceded that the US should fall into line with the Paris-based Organisation for Economic Co-operation and Development when it puts forward proposals for a global digital tax. If the US honours this promise, a delay in imposing a UK tax will seem wise. If the US backtracks on backing the OECD plan, then, as the French have also threatened, the UK can revive the tax and backdate it.
One way or another, the tax avoidance techniques of the major digital firms need to be tackled. If the threat of going it alone will help spur the US into accepting the OECD tax, then all the better.
Why does a stint at Boots seem to make bosses hot retail recruits?
You have to go back many years to find anything to admire about Boots, the high street chemist founded by Nottingham industrialist Jesse Boot. So it’s surprising that today it is still regarded as a hotbed of management talent.
Last week Sainsbury’s said chief executive Mike Coupe – whose reputation was tarnished by last year’s failed merger with Asda – would pass the baton to retail and operations director Simon Roberts in the summer. Before joining Sainsbury’s in 2017, Roberts spent 15 years at M&S, then 13 years at Boots.
And Roberts is not the only Boots person taking the helm of a British supermarket this year: Boots lifer Ken Murphy is replacing Dave Lewis at Tesco. Both men started working in shops as teenagers, so are no strangers to the sharp end of retail.
But why are the CVs of executives schooled in the 170-year-old Boots chain, now part of US conglomerate Walgreens Boots Alliance, apparently so attractive? On the surface, anyway, the business’s coping tactics, as brutal forces reshape the retail industry on both sides of the Atlantic, look no better than those of established rivals.
Both Roberts and Murphy, who are said to know each other well, face big strategic decisions as their discount rivals Aldi and Lidl continue to grow in stature.
Lewis has stabilised Tesco, but where does it go from here? Its UK market share is still drifting downwards and its international business has largely been dismantled. Coupe’s disastrous attempt to combine Sainsbury’s with Asda tested the competition watchdog’s appetite for mega-mergers, so Roberts, who is already credited with improving the supermarkets’ performance, will need something else up his sleeve.
If Boots has access to a secret retail tonic, its health benefits have been well hidden.
Trump’s switch into campaign mode offers a lull in the storm
The coming year will lack the economic fireworks of 2019. There will be ups and downs provided by the UK-EU Brexit negotiations, but with a US president more concerned about getting himself re-elected than fighting a trade war with China, the general picture looks much more settled.
All the economies worst hit by last year’s almost monthly tit-for-tat hikes in import tariffs between Beijing and Washington have begun to recover. Britain, Germany and France all put in a strong performance this month as their manufacturing sectors stabilised and their service sectors broke out of a trot into a canter.
Britain is a feather in every chill wind that blows around the global economy, and a degree of calm will help settle the nerves of the Bank of England’s policymakers, who had looked poised to cut rates this week.
Speech after speech by the finest minds in Threadneedle Street had revealed a degree of worry about the economy not seen since the aftermath of the Brexit vote. Earlier this month, the odds on an interest rate cut had shortened to the point where it seemed highly likely.
A shocking collapse in retail spending in the run-up to Christmas prompted Bank governor Mark Carney to join the ranks of gloom-mongers ready to reduce borrowing costs in the hope of reviving not just the high street but all areas of a flagging economy.
A first-stage agreement between the US and China on trade, combined with the cumulative impact of interest rate cuts over the past 12 months by 49 other central banks, have served to turn things around and save the Bank from taking any action itself.
Donald Trump has the capacity to wreck even his own good work. Yet that seems unlikely as he moves into campaign mode. For that reason alone, the outlook for UK interest rates remains as it was: ultra-low for the next year with only small rises possible if there should be, in defiance of Brexit, spectacular growth.