European and British companies are revealing the consequences of the trade war with the US. Company executives are talking about declining consumer confidence, risks to supply chains and instability due to uncertainty over tariffs.
Nestlé, the world’s largest food company, Mercedes-Benz and British consumer goods group Unilever are among those warning investors that business conditions have changed since tariffs were imposed on US trading partners last month.
In their first quarterly reports since the US president’s “freedom day,” companies reported numerous problems, including slowing growth in the US, their largest market, and lower hopes for an economic recovery in the eurozone.
Jesper Brodin, head of Ingka Group, which operates most Ikea stores, noted that one of the most difficult tasks was understanding how to respond to the speed with which the White House announced measures that could have long-term consequences for supply chains and pricing strategies.
“I remember a time when politicians were slow and companies were fast, and Ikea cannot adapt to such a fast pace,” Brodin said in an interview with the Financial Times, adding that when choosing a location for a factory, the company usually looks 10 years ahead.
The administration’s trade policy, which Trump says is intended to attract investment, factories and jobs to the US, has been a major theme in the quarterly reports of European and British companies.
According to FactSet, tariffs were mentioned 223 times in April in statements by companies included in the benchmark Stoxx Europe 600 index, many of which are registered in London, compared with 115 mentions in March.
The sharp increase reflects the impact of the event that took place on April 2, when Trump imposed a 10% base tariff on trading partners and higher so-called reciprocal tariffs on dozens of countries. The White House subsequently postponed the introduction of higher duties for 90 days to allow for negotiations on trade agreements.
Many executives say that the prolonged uncertainty over the final size of the so-called reciprocal tariffs and the form of trade agreements is damaging in itself, limiting their ability to plan and make financial forecasts.
“I think the uncertainty caused by economic policy, trade wars and financial market developments has heightened concerns and created even more uncertainty,” Nestlé CEO Laurent Freixe said.
Negotiations between the EU and the US are stalled, and Brussels intends to impose retaliatory tariffs on July 8 in the absence of a trade agreement. The UK and the US are continuing negotiations to reach an agreement.
Faced with a lack of clarity, Stellantis, which owns the Fiat and Chrysler brands, as well as Mercedes-Benz and Volvo Cars, has withdrawn its forecasts.
“You’re starting to see companies making statements about low confidence and reluctance to make long-term plans,” Fabiana Fedeli, portfolio manager at M&G Investments, said.
Investors have yet to hear from many of the 517 companies in the Stoxx 600 index about their quarterly results, but it is already clear that tariffs have negatively affected consumer confidence and deal-making.
Reckitt, the British manufacturer of Strepsils and Dettol, said that market volatility following the introduction of tariffs could affect the multi-billion-pound sale of its cleaning products business.
Freixe of Nestlé told analysts that consumers were “frankly not thrilled” about the tariffs at the beginning of the year, and the situation has worsened.
Unilever, one of the largest companies in the FTSE 100 index, highlighted the potential impact of significant currency fluctuations following the introduction of tariffs. Acting Chief Financial Officer Srinivas Phatak called the sharp fall of the dollar against the euro in recent weeks “unprecedented.”
Global stock markets rose last week amid signs that the US and China may begin to seek ways to resolve the trade war that led to the imposition of punitive tariffs by Washington and Beijing.
Company executives used earnings reports to warn that companies need real clarity on trade policy before they can resume important decisions.
According to George Weston, chief executive of Associated British Foods, the parent company of Primark, British clothing retailer Primark, which plans to double its number of stores in the US to 60 by next year, could potentially move some of its production out of China. But he added: “We will only adapt our supply chains when we have more certainty about the long-term position of various markets relative to the US market.”
Former Greek finance minister Yanis Varoufakis provided extensive commentary on this topic:
“There is a delicious irony in the way our governing centrists, in the UK and in the EU, are lamenting the Trump Shock. They wax lyrical about the globalised, financialised capitalist order which they now mourn. They portray it as a golden age, a natural global system of free trade and benign capital flows. Are they truly oblivious to the facts of recent economic history? Do they not know that the grossly imbalanced, extractive, Ponzi-like financialised global capitalism which has spawned the crises that propelled Trump into the White House was also birthed by a major shock? The Nixon shock?
Centrists admonish the Trump boys for having turned on their allies but they forget that the Nixon Shock was equally, if not more so, an intentional devastating assault on Europe, Japan and the UK. They seem unaware that precisely because of the economic devastation caused in the 1970s and 1980s, including in America’s heartlands, the Nixon Shock’s architects, men like Paul Volcker, achieved their main long-term objective: to ensure that American hegemony grew alongside America’s trade and government budget deficits, not to mention on the back of financial rents earned at the expense of real value creation.
Many seem puzzled that, while the EU and the Britain differ in important ways – mainly in that the EU is running a huge surplus with the US while the UK remains a deficit economy – our centrist regimes on both sides of the Channel seem equally at a loss. There is a reason for this. Since 1971, our economies have been hooked into the same US-centric global surplus recycling mechanism whose deep crisis is steering our politics into the arms of the xenophobic ultra-right – with our electorates increasingly pummelled by nasty undercurrents fuelled by the crisis of this global recycling mechanism that once drove Europe’s and Britain’s growth and relative stability.
The essence of this global recycling mechanism (which I once labelled The Global Minotaur) is simple: Since the 1970s, America’s deficits provided Germany, Japan and later China the demand for their factories’ manufactures. In return, the European Union, Japan and later China sent their accumulated profits to Wall Street and its appendage, the City of London, to be recycled into the US rentier sector: private and public debt, some equities, and real estate. A Chinese official once described this mechanism to me as a Dark Deal. “Our Dark Deal with the Americans,” he explained, “turns on the US trade deficit, which keeps demand for our manufactures high. In return, our capitalists invest the bulk of their dollar superprofits into America’s rentier economy – Finance, Insurance, and Real Estate. Once this process got underway”, he concluded, “America shifted much of its industrial production to our shores.”
The problem with this global recycling mechanism was that, to function smoothly, it had to generate larger and larger imbalances, greater trade deficits for the US, and more accumulated rents for Northern Europe and East Asia. But, there are limits to how large imbalances can grow, both in terms of trade deficits and in terms of profits versus rents. Ruptures are inevitable. The longer they are delayed the greater the pain they inflict – a truth that centrists never acknowledged, not even when the Crash of 2008 was tearing down their houses.
Trump’s boys have dared asked the pressing question that the centrists refuse to countenance: What comes after the Dark Deal once the imbalances built on the US trade deficit proved unsustainably massive?
Their proposed solutions may seem wrongheaded, half-baked, even crazy but at least Trump’s team has identified the American ruling class’s problem: How to maintain US hegemony in the face of America’s rapid de-industrialisation, with the Triffin Dilemma hanging over their heads, and now that financial rents are being replaced by what I call cloud rents. In contrast, UK and EU politicians are utterly out of their depth, running around like decapitated chickens, oscillating between vacuous bravado and servility to The Donald.
Guy Standing suggested that, today, I focus on how Europe and the UK should respond to the Trump Shock. I could talk endlessly on this. I could, for example, recommend not just a 10% cloud tax by which to clobber Big Tech but also repealing all regulations that we introduced in Europe to comply with Bill Clinton’s despicable ‘anticircumvention’ Act which is why you can’t buy a jailbreaking tool so your printer is able to recognise and use cheaper, generic ink cartridges. I could recommend that our governments rescind all tariffs imposed at the behest of Washington on excellent Chinese solar panels and electric vehicles, while entering into a serious EU-UK-Chinese dialogue with a view to stimulate our economies in a coordinated fashion so as to stem the recessionary wave coming from Trump’s America. I could recommend that Europe starts its own Peace negotiations with Moscow over Ukraine, rejecting the plunder of Ukraine’s underground wealth by Trump’s boys.
But, in all honesty, I can’t find the energy to make these recommendations when I know that the Radical Centre in power, in Britain and in the EU, will do everything they can to not do any of that – in exactly the same way they botched the euro crisis or the opportunities offered by the pandemic. Determined to remain wedded to America’s rentier economy, Europe’s and Britain’s elites will not deviate from current policies – not unless we overthrow them first. But for this we need an agenda bolder than Trump’s and Farage’s and, of course, a radically humanist one – an agenda that is not fearful of radical proposals like a public green investment bank, a trust fund for everyone yielding an unconditional personal income, the termination of all quasi-energy markets, the socialisation of housing and, last but not least, a surge in corporations practising one-employee-one-member-one-vote.
Meanwhile, as we stuggle to give political representation to such an agenda, all eyes on China – the only country, for better or for worse, that seems willing and able (though not predestined) to counter Trump’s bullies, to boost green energy production, to work toward turning the BRICS into a new Bretton Woods serving the interests of the Global South.”
