6 ★ FINANCIAL TIMES Friday2 August 2019

GUY CHAZAN— BERLIN

The woes of a small equipment maker

have become a symbol of the impact of

global trade tensions, fears of a hard

Brexit and acooling Chinese marketon

the German car industry.

Eisenmann, which makes paint lines for

car plants, said this week it was filing for

insolvency. The company, which

employs more than 3,000, blamed prob-

lems with a series of big projects carried

out in 2018: costs had been miscalcu-

lated and milestones missed, and there

had been difficulties with suppliers,

resulting in a “big annual loss”. Michael

Keppel, chief restructuring officer, said:

“We had to act quickly and resolutely.”

Eisenmann’s problems are the latest

sign of trouble in one of the main pillars

of Germany’s export success and coin-

cide with increasing signs that the coun-

try is facing a broader downturn.

The economy remains largely

healthy, with unemployment near

record post-reunification lows, but busi-

ness confidence has becomenegative

across all sectors bar construction. The

Bundesbank said last week that gross

domestic product probably contracted

in the second quarter, with “no sign yet

of a recovery in exports and industry”.

DIW, the think-tank, expects the

weakness to continue, forecasting eco-

nomic output will shrink 0.1 per cent in

the third quarter amid signs the indus-

trial slowdown is spreading to the wider

economy. “Orders are deteriorating,

consumers are becoming more sceptical

and even the labour market, which has

been robust until now, is losing momen-

tum,” said Claus Michelsen of DIW.

The forecast coincided with further

signs of a slowdown across the euro-

zone. The economy of the single cur-

rency area expanded 0.2 per cent in the

second quarter from 0.4 per cent for the

first three months of the year, data pub-

lished by Eurostatshowed.

Germany’s industrial weakness has

been particularly marked in the auto-

motive sector, in which production

declined 12 per cent in the first half of

this year. This weekDaimler, maker of

Mercedes-Benz cars, reported a €1.6bn

loss in the second quarter, partly as a

result of falling sales in the US and

China.Audisold 4.5 per cent fewer cars

in the first half of the year. The industry,

which is critical to Germany’s economic

strength, sustains 820,000 jobs, pro-

duced total revenues of €423bn in 2017

and contributes about 5 per cent to GDP.

But it is in trouble, not least in China,

its biggest market. Passenger vehicle

sales there fell 4 per cent to 23m last

year and dropped 14 per cent in the first

half of this year.

“The German car industry is in a

really critical situation,” said Stefan

Bratzel, head of the Center of Automo-

tive Management. Carmakers strug-

gling with falling sales and trade worries

also had to invest heavily in the shift to

electric vehicles.

“All of them have had to reduce costs

because they need the money for invest-

ment, and that is having a knock-on

effect on suppliers,” said Mr Bratzel.

Continental, Europe’s largest publicly

listed auto technology supplier, cut its

2019 guidance last week as well as its

forecast for production across the auto-

motive sector.Schaeffler, a parts maker,

this week revised down its forecast for

profit and revenues, saying it expected

global car production to fall 4 per cent in

2019. In February it had predicted a fall
      of just 1 per cent.
      Eisenmann still hopes it can survive
      as a going concern. It is seeking a “strate-
      gic partner” and hashad a number of
      expressions of interest.But it is unlikely
      to be alone in its predicament.
      “The carmakers’ profit warnings, the
      decline in production and sales... that
      is impacting all the suppliers, big and
      small alike,” added Mr Bratzel.

Supply chain

Struggles of small cogs in German car export machine point to trouble on a bigger scale

I

t is one thing for Donald Trump to reverse everything

Barack Obama did. His quest is nearing completion.

From the Iran nuclear deal to the Paris climate agree-

ment, Mr Trump is stamping on anything with his

predecessor’s name on it.

The unfinished task is Obamacare, which Republicans

have only partially disabled. It is thus ironic that most

Democrats vying to replace Mr Trump would finish the job

for him. Very few are promising to restore Obamacare. The

main exception is Joe Biden, who, as Mr Obama’s number

two, helped enact the Affordable Care Act. Even Mr Biden,

however, is conflicted about whether to boast of his Obama

association, or change the subject.

Nobody in the Democratic presidential debates has

attacked Mr Obama directly. Their distancing is no less

emphatic for its stealth. This too can be blamed on Mr

Trump. In addition to his scorched earth war on the

Obama presidency, Mr Trump has destroyed its premise.

Mr Obama was elected on the lofty vow of finding what

Americans have in common. There was no red or blue

state America in his worldview — only a united America.

Was that only a decade ago? To Democrats, Mr Trump’s

presidency started in the year zero. Their continued shock

at Mr Trump’s election outweighs their nostalgia for Mr

Obama’s 2008 campaign. That is one reason Mr Biden’s

lead is so shaky. Unlike the other 23 candidates, he believes

Mr Trump is an aberration. Defeat him in 2020 and the US

can return to the certainties of the Obama years.

Few others share Mr Biden’s upbeat vision. America is

too bitterly divided to be healed by gauzy hopefulness. Mr

Obama came from a place

of magnanimity. That is

also Mr Biden’s senti-

ment. Most other candi-

dates have moved on to

vengeance. It would

make no sense for Demo-

crats to revive talk of

“purple America” when

they are calling for Mr

Trump’s impeachment.

Mr Trump has also radicalised Democrats. In retrospect,

the Obama administration looks like the epitome of the

establishment. It was full of Wall Street alumni. As George

Packer, the writer, put it: “Obama was a technocrat dis-

guised as a visionary.”

Reaction against his lack of vision is one reason why

many of the leading candidates, including Elizabeth War-

ren and Kamala Harris, have joined Bernie Sanders’ call

for single payer healthcare. It is also why Mr Biden was

grilled so hard by fellow candidates about whether he pri-

vately objected to Mr Obama’s deportation of more than

2m illegal immigrants. Mr Biden pleaded confidentiality. It

is an awkward fact that Mr Trump has not yet come close

to emulating Mr Obama’s deportation record.

In another age, Democrats would be vowing to restore

what Mr Trump is undoing. Instead they are promising a

radical departure. Not even Mr Biden would be content

with rejoining the Paris climate agreement. By the stand-

ards of the “green new deal”, the accord Mr Obama negoti-

ated reeked of caution. Mr Obama pursued an “all of the

above” energy strategy. Mr Biden on Wednesday came

close to vowing to abolish all fossil fuels. In 2009, Mr

Obama told Wall Street executives that he was all that was

standing between them and the pitchforks. Today’s Demo-

crats are the pitchforks. Bill de Blasio, mayor of New York,

even has a website called “tax the hell” out of the rich.

What then will remain of the Obama legacy? The most

radical aspect of Mr Obama’s election was his ethnicity. As

America’s first non-white president, he made history. Mr

Trump’s racial goading has complicated that national

redemption. Yet there is nothing Mr Trump can do to erad-

icate Mr Obama’s example. Half of the candidates on the

stage with Mr Biden on Wednesday were non-white,

including Ms Harris, his chief rival. His other rivals are Ms

Warren, a white woman, Peter Buttigieg, a gay married

man, and Bernie Sanders, a socialist. Next in line are Julián

Castro, a Mexican-American, and Cory Booker, an African-

American.

Such a field would have been inconceivable a few years

ago. As he surveys today’s wreckage, Mr Obama can draw

on one other consolation: at least he merits the occasional

mention. Bill Clinton, by contrast, has vanished. In the age

of #MeToo, America’s 42nd president is persona non grata.

Democrats are busy purging the past. Given the mood, it

would be a surprise were Mr Biden to make it to the

finishing line.

[email protected]

GLOBAL INSIGHT

WASHINGTON

Edward

Luce

Obama quietly pushed

aside by Democrats

vying for highest office

Their shock at

Trump’s election

outweighs nostalgia

for Obama’s

2008 campaign

INTERNATIONAL

JAMES POLITI AND

DEMETRI SEVASTOPULO— WASHINGTON

COLBY SMITH— NEW YORK

Donald Trump said the US would place a

10 per cent tariff on $300bn of addi-

tional Chinese goods, escalating the

trade war between Washington and Bei-

jing in a new threat to the global eco-

nomic outlook.

The announcement shook markets,

sending the yield on the 10-year Treas-

ury note to its lowest level since 2016

and pushing down stock prices after

they had rallied earlier in the day.

In a series of tweets, the US president

shattered the fragile truce he had

reached with Xi Jinping, his Chinese

counterpart, at the G20 summit in

Osaka in late June, which had paved the

way for a new round oftalks in Shanghai

this week.

Mr Trump suggested the negotiations

had gone badly, with China failing to fol-

low through on its pledges to buy more

US farm products and restrict the flow

of fentanyl to America.

“The US will start, on September 1,

putting a small additional Tariff of 10%

on the remaining 300 Billion Dollars of

goods and products coming from China

into our Country. This does not include

the 250 Billion Dollars already Tariffed

at 25%,” Mr Trump wrote in a tweet.

“We look forward to continuing our

positive dialogue with China on a com-

prehensive Trade Deal, and feel that the

future between our two countries will be

a very bright one!” he added.

Investors reacted by flocking to the

safety of US government debt. The yield

on the benchmark 10-year Treasury

note was off 11.7 basis points at 1.

in early afternoon trading. Yields on

shorter-dated Treasury bills plum-

meted to 1.72 per cent.

The S&P 500 sank as much as 1.1 per

cent on the announcement, before par-

ing some of its losses.

Themove was particularly jarring

because it coincided with growing fears

of a global economic slowdown.

On Wednesday, the Federal Reserve

cut its main interest rate by 25 basis

points to protect the US economy from

the uncertainty deriving from trade ten-

sions around the world.

If Mr Trump follows through on his

latest tariff threat against Beijing, it

would mean that all of China’s exports to

the US would be covered by levies,

including a slew of consumer goods

from toys to clothing and footwear.

“Not only does this bring lower rates

but it putsimmense pressure on the Fed

to do something more, sooner rather

than later,” said Jim Paulsen, chief

investment strategist at Leuthold Group

Mr Trump began placing tariffs on

Chinese imports early last year, with an

initial move targeting $50bn of indus-

trial products. He added levies on a fur-

ther $200bn of products in late 2018.

After negotiations broke downin

May, Mr Trump increased the tariffs on

that $200bn of products from 10 per

cent to 25 per cent and threatenedtar-

iffs on the remaining $300bn ofimports.

Yesterday, the US president signalled he

would follow through on that threat.

Many had hoped that the G20 meet-

ingwould herald a new détente, since

Mr Trump had described the talks as

“excellent”.

But the US president also signalled in

Osaka that he was prepared to dig in for

the longer term if negotiations did not

produce the right result, saying he was

“in no hurry”.

“The quality of the transaction is far

more important to me than speed,”

Mr Trump said at the end of the G20.

Global economy

Fresh US tariffs ramp up trade tension

Markets shaken by new

Trump levies on $300bn

of Chinese imports

‘Not only

does this

bring lower

rates, it puts

immense

pressure on

the Fed to

do more,

sooner

rather than

later’

JAMES POLITI— WASHINGTON

COLBY SMITH— NEW YORK

After weeks of market pressure and

internal debate, Jay Powell, the Federal

Reserve chairman, pulled the triggeron

the US central bank’s first interest

rate since the financial crisis.

That was the easy part.

While Wednesday’sannouncementof

a 25-basis-point cut was in line with

market expectations, the press confer-

ence that followed showed how chal-

lengingMr Powellwill find guiding

investors on what happens next.

When the Fed chairman said that the

move was a “mid-cycle adjustment in

policy” — not the start of a full-blown

easing cycle, which would imply multi-

ple and possibly deep rate cuts —

investors were spooked.

“The press conference muddied the

waters,” said Julia Coronado,an econo-

mist at MacroPolicy Perspectives. “Even

if the Fed’s own thinking hasn’t changed

much, and the bar is still very low for

another rate cut, the lack of clarity on

the motivation and the baseline think-

ing and the triggers for action leave mar-

kets more confused.”

Mr Powell’s unwillingness to commit

to deeper monetary easing with great

force represented a contrast to the con-

sistently dovish messages sent by Fed

officials in the weeks leading up to the

Fed meeting in a series of speeches, con-

gressional testimony and media

appearances.

Mr Powell and his colleagues had laid

out the rationale for preventive easing

in great detail as a way to tackle low

inflation and interest rates around the

world and protect the US from weaker

conditions in the world economy,

including the impact oftrade tensions.

At one point two weeks ago, the

dovish drumbeat had grown so loud

that some investors were even betting

that the Fed could act more aggressively,

with an immediate cut of 50bp, with

several more to follow before the end of

the year.

Yet while the Federal Open Market

Committee statement signalled that the

Fed would “act as appropriate to sustain

the expansion”, suggesting it still had a

bias towards easing, Mr Powell’s

remarks stressed that the central bank

would look carefully at the data before

making its next move — so much more

stimulus could not be guaranteed. The

dissent of two FOMC members — Esther

Georgeof the Kansas City Fed and Eric

Rosengrenof the Boston Fed — may

have factored into the more cautious

approach to easing described by Mr

Powell. Both officials had signalled they

wanted to see more evidence of a real hit

to theUS economybefore approving

interest rate cuts. No one dissented by

calling for more dramatic easing.

“Chair Powell appeared very reluc-

tant to suggest that additional rate cuts

were likely,” said Eric Winograd, senior

US economist at AllianceBernstein, and

“even then, he emphasised that if there

are additional cuts it would likely be a

brief cycle”.

Although equity markets dropped

sharply during Mr Powell’s press confer-

ence, they did recover some ground

after he indicatedttthe Fed did not intendhe Fed did not intend

to stop at “just one” interest rate cut.

If there is a benefit of Wednesday’s

market whipsaw to the Fed chair, it is

that the central bank may have wiggled

out of a preset easing path that it was not

entirely comfortable with.

“Today’s Fed events may have given

risk markets a little indigestion, but

they also bought the Fed a little more

flexibility going into the next FOMC

meeting,” wrote Michael Feroli, an

economist at JPMorgan. “While today’s

move was motivated by global growth,

trade policy and inflation develop-

ments, we expect September’s decision

will also depend on domestic growth

developments.”

A clear-cut decision for the Fed may

not be simple even then. Trade negotia-

tions between the US and China have

resumed, with a new round expected in

September, but with expectations of

limited progress towards a lasting

peace. Economic data have shown a

split between strong consumption and

employment on one side, and weak

investment and manufacturing figures,

which may not be resolved one way or

the other. In his press conference, Mr

Powell did suggest that Fed policy had

already been successful in that the

expectations of a rate cut had led to bet-

ter financial conditions, helping support

the economy. But the danger now for the

Fed is that by dimming expectations of

future rate cuts, it could trigger the

opposite dynamic.

Some economists are adjusting to the

likelihood of a more gradual, cautious

Fed easing by predicting a delay and

slowing in the pace of interest rate cuts,

rather than a walkback or a pause.

But on Wall Street, there was disap-

pointment that a new era of easier

money that markets had encouraged

and warmed to in recent months was

not a done deal.

“The whole purpose of the cut was to

signal that they are aware of what was

going on in the world and act on a pre-

emptive basis,” said Krishna Memaniof

Invesco. “While I fully understand the

desire to set market expectations, he

had many more opportunities down the

road to do so. You can always count on

Jay Powell to mess up a good thing.”

Editorial Commentpage 10

Washington.Monetary policy

Fed chief faces challenge over easing

Powell’s lack of clarity on deep

rate cuts upsets markets after

weeks of dovish messages

Mid-cycle

adjustment:

Jay Powell

addresses the

media on

Wednesday

in Washington,

where his

comments

spooked

investors

Sarah Silbiger/Reuters

‘The danger now is that by

dimming expectations for

future rate cuts, it could

trigger the opposite... ’

Body blow:

Eisenmann

supplies paint

line equipment

to car plants

such as the

Ford factory

in Cologne

Krisztian Bocsi/Bloomberg

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