Section:OBS 2N PaGe:52 Edition Date:190804 Edition:01 Zone: Sent at 3/8/2019 9:40 cYanmaGentaYellowblac
- The Observer
52 04.08.19 Analysis
T
he timing could not be
better. On 1 September
1939, German troops
crossed the border
into Poland, triggering
the start of the second
world war. Eighty years to the day
later, on 1 September 2019, Donald
Trump plans to impose a 10% tariff
on a fresh range of Chinese imports
into the US. If that happens, it will
mark the moment when trade’s cold
war turns hot.
Make no mistake, the unexpected
announcement threatens to have
serious consequences. Up until
now, the Chinese goods targeted for
tariffs have been carefully selected
to avoid hurting consumers. That
is no longer the case. From next
month, almost everything China
sends to the US will be affected. In
bald terms, that means Americans
are going to be paying more for their
smartphones, laptops and clothes.
Trump boasts that the US is going to
be “taxing the hell out of China” but
he has got the economics completely
wrong. The taxes will be paid by
Americans faced with paying more
for imports.
With less than 18 months to go
before the culmination of the 2020
presidential election race, this is a
strategy fraught with risk. Trump
is gambling that China’s leader, Xi
Jinping, will bow to the pressure and
sign a comprehensive trade deal
that would provide greater mar-
ket access for American companies,
increase imports of US agricultural
products and act to prevent the theft
of American intellectual property.
The US president is also using
the threat of a full-blown protec-
tionist standoff between the world’s
two biggest economies to bully the
Federal Reserve, America’s cen-
tral bank, into further cuts in inter-N
o adjective appears
next to Willie Walsh’s
name more often
than “pugnacious”.
The former pilot,
who runs British
Airways’ parent company, IAG, rarely
shies away from confrontation and
usually leaves his opponent nurs-
ing a bad headache. Just ask Richard
Branson, who once offered him a
£1m wager over the future of Virgin
Atlantic, only for Walsh to suggest
that the stakes be changed to a “kick
in the groin”.
The Irishman is rather more con-
ciliatory in the tone he takes with
pilots, having served 18 years in the
cockpit at Aer Lingus.
With BA facing the prospect of
summer strikes by pilots, Walsh
spoke of his “huge respect” for the
professionalism of his a viators. But
he has form for ruthless strikebreak-
ing, both at BA and Aer Lingus, and
his underlying message was no less
robust for its scrupulous politeness.
He was not involved in pay nego-
tiations, he said, but knew what
it was like to sit on both sides of
the table.
He claimed he would not have
made such a generous offer as a
manager (BA has suggested an 11.5%
rise over three years), and that, in
his days as a union representative,
he would have grabbed it and run.
When Walsh deploys that kind of
rhetoric, it usually indicates that his
resolve has hardened.
BA has plenty to lose here, given
that strike action could cost it
£40m a day. But if summer holi-
days are disrupted, the carrier may
not struggle to make public villains
out of the pilots, who tend to earn
signifi cantly more than many of
their passengers.
BA will also point out that the
Unite and GMB unions, which rep-
resent less well-paid staff such as
cabin crew, have already accepted
the airline’s pay offer.
Conciliation talks are continuing,
but pilots will know that they are up
against a battle-hardened opponent.est rates. Global tensions were top
of the Fed’s list of concerns when it
announced a quarter-point cut in
offi cial borrowing costs last week.
Those tensions have just got a whole
lot worse.
Trump also thinks that he will be
able to squeeze more trade conces-
sions out of the European Union if
he can bring China to heel. Germany- particularly its car industry – has
been served notice by the president
that it is next.
But the strategy relies on Beijing
buckling, something that it has yet
to do. China’s initial response to
Trump’s announcement – that this
is not the way to negotiate – signals
that Xi is prepared to play the long
game. To be sure, tariffs are hurt-
ing the Chinese economy, which is
growing at its slowest pace since
the early 1990s. But China is still
expanding by just over 6% a year,
three times as fast as the US.
What’s more, global fi nan-
cial markets were caught com-
pletely unawares by Trump’s latest
salvo and there was a predictable
response to his tweets: tumbling
share prices, cheaper oil and a fl ight
into safe havens such as gold.
Xi thinks that turmoil on Wall
Street is not necessarily what the
president wants in the comingmonths. China is also waiting to see
whether someone with less protec-
tionist instincts wins the race for the
White House next year, and whether
Republicans shaping up for tight
congressional races in 2020 will
start putting pressure on Trump to
be conciliatory if the US economy
starts to slow under the weight of
the trade war.
But China will do more than sit
back and wait for Trump to recon-
sider. It has weapons of its own
and will announce retaliation: by
banning certain US companies
from doing business, by limiting
the exports of rare earth materials
that are crucial for hi -tech US com-
panies, and by raising tariffs on
American goods.
How will Trump respond to that?
Not by folding, that’s for sure. And
that leaves the global economy bal-
anced on a knife edge.T
he vegan sausage roll
has acted as rocket
booster for Greggs,
helping propel i t
towards a very mod-
ern form of retail suc-
cess as it reaches new customers.
The news that the Newcastle-
based company now sells more
takeaway coffee in the UK than
Starbucks , while only Tesco sells
more sandwiches and McDonald’sVegan success shows that Greggs can roll with a changing market
BA pilots would
be unwise to
read too much
into Walsh’s
warm words
more breakfasts, is astounding. Hold
the McMuffi n.
Shareholders are getting a Quorn-
and-pastry-funded £35m special
dividend, after sales at estab-
lished stores leapt 10.5% and profi ts
jumped more than 50% to £40.6m
in the six months to 29 June. While
other s are closing shops, Greggs is
on track to open its 2,000th outlet in
the next few weeks as part of plans
for 100 new sites this year.Six years ago it was another story:
the company put a freeze on expan-
sion after a string of profi t warn-
ings prompted by falling sales. It
seemed customers had tired of luke-
warm sausage rolls and tatty stores.
An attempt at reinvention with the
Greggs Moment coffee shop was a
fl op, and the company was making
more excuses than it was snacks.
But since Roger Whiteside was
appointed chief executive in 2013,the chain’s fortunes have been
transformed. It’s amazing what
careful consideration of the chang-
ing desires and behaviour of your
customers can do for business.
Bringing Greggs up to date with
modern food trends – with porridge
for breakfast, fresh salad for lunch
and actually decent, ethically sourced
coffee, as well as the vegan sausage
roll – has brought in punters who
never bothered before. Clever use ofsocial media – capitalising on Piers
Morgan’s outrage over the meatless
savoury snack , for example – has
also updated the bakery’s image.
The company’s success on the
high street is a prescient lesson for
so many retailers who are retreating
from stores. If you create something
desirable and work out how to com-
municate with potential customers
in a creative modern way, perhaps
you too could get on a roll.When Trump turns up the heat in the
trade war, Americans will feel it too
Business leader
In the fi ring line: shipping and freight at the port of Long Beach in California. Photograph by Mark Ralston/GettyMarkets were caught
unawares by the
US’s latest salvo, and
Xi thinks the turmoil
on Wall Street is not
necessarily what the
president wants
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