What's Trade to Me? Brexit Update from Nissan in Sunderland

What's Trade to Me?  Brexit Update from Nissan in Sunderland

Reprint: The 61% pro-Brexit vote in Sunderland is what happens when cities fail to recognise the ways in which the global economy has changed, and when they fail to connect the dots between the global economy and individual livelihoods at home. Though proud residents might like to spin a narrative of independence, the reality is that workers here are literally standing on the front lines of an interconnected global economy. Ask those in Sunderland, however, and you would think Brexit was far less important than Britain losing to Iceland in the Euro Cup. The New York Times carried an article featuring a variety of perspectives from Sunderland, summarised best, perhaps, by Ken Walker, a retired construction worker. “I don’t have any money in the stock market,” Mr. Walker, 59, said as he drank a pint of beer in a pub. “So what’s it to me?”

How Not to Win a Trade War

Arbitrary or capricious rule changes are a significant danger for foreign firms looking to diversify out of China into other markets in Asia.  It certainly does no good to open a new warehouse or building, only to have a regulatory change that renders it unusable or be saddled with new requirements on staffing that drive costs into the red. Most of the markets in the region that are currently expecting to capitalize on the trade war struggle with at least some—and usually all—of these problems.  An honest assessment of market conditions in hopeful “winners” could bring about some necessary changes.  There is certainly an opportunity for many markets to capture new gains from trade in areas that have not been “in play” for years.  But absent some significant improvements in the ease of doing business in a remarkably short period of time, many of the locations that expect a windfall from relocations are likely to be bitterly disappointed.

Flipping the E-Commerce Cart

E-commerce and digital trade are certainly upending retail patterns globally.  It is important to note that these changes are not a random act handed down from the heavens.  Instead, these changes flow from millions or even billions of companies and consumers increasingly demanding goods and services to be delivered digitally. The plan in India is to stop firms like Flipkart from selling goods in the market.  This—it must be assumed—will help keep small, largely inefficient shops in business for longer and keep consumers spending more on products than they clearly would like.  After all, if consumers did not want e-commerce goods, they would not be buying off Flipkart in the first place and would not be driving demand for more goods. Customers have clearly expressed their preferences.  They are unlikely to completely abandon the corner shop, but their purchases are becoming increasingly diversified and digital orders play a key role. While India represents the more extreme end of regulations on e-commerce, other governments are starting to take actions to increasingly constrain the actions of players.  Most are still aimed at large firms with limited understanding of the collateral damage to small firms and consumers.

Looking Ahead: Trade in 2019

Looking Ahead:  Trade in 2019

1.      US-China:  The biggest story is likely to remain the ongoing battle between the United States and China.  The most immediate deadline is March 1, when the US has promised to impose 25% tariffs on $200 billion in Chinese imports that are currently subjected to 10% tariffs, if the two sides cannot successfully negotiate their way out of the complaints lodged in the Section 301 case. Chinese officials are meant to travel to the US later in January to continue discussions, followed by more talks in mid-February.  Given the rapidly closing timeline, however, getting a satisfactory conclusion to the long list of US objectives is unlikely.  Three scenarios are possible: 1) US President Donald Trump accepts an outcome that does not really address the systemic complaints at the heart of the Section 301, but goes for a package that includes more Chinese purchases of US agricultural and energy goods plus some limited commitments on Chinese reforms; 2) the timeline is extended, as talks are making headway with a resolution closer to filling most of the Section 301 demands possible by mid-year; or 3) talks collapse and tariffs are imposed on the $200 billion in goods, ramping up to include all Chinese imports to the US before the end of the year.

Where Does Brexit Go From Here?

Where Does Brexit Go From Here?

Ignore, for the moment, all the issues attached to anything other than trade.  On the trade side alone, the lack of a deal with the EU to handle trade amounts to more than just “additional paperwork.”  Because the UK has been part of the EU for so long, with seamless trading in place with zero tariffs, no customs checks, no paperwork, limited services barriers, ease of moment of people and so forth, this situation feels normal.  In a hard Brexit scenario, none of these conditions will apply. As many firms outside the EU would be happy to describe, doing business with the EU can be a complicated and costly process.  Tariffs into the EU for non-member firms can be high.  The customs and compliance formalities are tricky.  Most UK companies currently meet EU standards for products, but should expect significantly greater inspections at the border.