Published: August 2019 (5 Min Read)

The Unintended Consequences of Nationalism as a Defence against Globalisation and Innovation. 

Trump and Brexiteers share a common theme. Protect the jobs and quality of life of the hard-working people who have lost out. There is great merit in promoting that goal, but are they going about it the wrong way?

Are they simply accelerating the process of disruption and industrial change? By “putting America first” or “taking control” are they actually hurting the people who voted for them?
The three industries most affected by tariffs between the US and China are automobiles, tech and agriculture. Let’s consider automobiles.

The nostalgic view hankers after a bygone era when jobs were concentrated in expensive developed economies, before the establishment of global supply chains, and the outsourcing of some jobs to less expensive places which were financially efficient. The use of robots on production lines was another driver of job losses, and the move to electric vehicles simply exacerbates the problem of disruption as fewer parts are required.

Trade wars add a further layer of impediment when the cars are not built where they are sold.

Sales of cars are under pressure too. They are falling in the US, they are falling in the UK and Europe, and they are falling in China, the largest market for cars in the world. In part this is caused by being in the late stages of an economic cycle, but trade wars have undermined their stability further. Morgan Stanley forecast global auto production to fall 4% this year, which will pressure profits for suppliers and car companies. (Source:

I am going to use the No.2 Detroit auto maker as my example. It is the sixth largest car company in the world and well known in Dagenham and Bridgend.

Firstly, how has it been affected by Trump’s Trade Wars?
  • Initially their costs were hit by the imposition of tariffs on steel and aluminium imports from Canada and Mexico. These were later rescinded but were unhelpful.
  • Tariffs only apply to exports to China so only cars shipped from the US are affected. The higher tariffs on cars imposed by China have therefore only affected those imported from the US. The majority sold in China are made in their two joint ventures in China.
  • Growth in China would therefore probably require more investment in China, not in the US.
  • However China also lies at the heart of the complicated global automotive supply chain which means U.S. producers spend more on parts from China when they are taxed at a higher rate. Carla Bailo, CEO of the Center for Automotive Research said, “Prices will rise for U.S. consumers – even if they buy a U.S.-built vehicle – due to the share of imported parts content used in U.S. production.”
  • One cannot easily measure the psychological effect upon Chinese consumers of a trade war, but it surely can’t be positive.
Secondly, how might it be hurt by Brexit?
  • The carmaker has announced plans for a major shake-up of its operations in the UK and mainland Europe, which are expected to lead to thousands of job losses across Europe, including the UK, although cuts at its UK factories are not thought to be imminent.
  • But their European boss said that should the UK leave the EU without a negotiated deal a further review would take place.
  • There will be a “reduction of surplus labour” across all its business functions. It has not released any figures, as discussions with unions are continuing, but it could be in “thousands”.
Thirdly, have they failed to assess local markets correctly?
  • Last year, their sales in China plunged 37%, much sharper than the broader market’s 3% decline. It reported a $1.5 billion loss in the country in 2018, its first after several profitable years. In the first six months of this year sales fell a further 27% compared to the same period in 2018. Its China market share was 2.1% in the first quarter this year, down from 5% the same period in 2016.
  • They failed to innovate locally assuming that a global product strategy, successful in the U.S. and Europe, would also work in China but rivals moved faster to add new technologies to suit the needs and desires of Chinese buyers.
  • The prolonged sales decline has become particularly troublesome for smaller, mass-market players that arrived late and are now being threatened by much-improved Chinese brands. The speed and depth of their decline in China stands out, exposing deep-rooted flaws in its approach. Part of the problem is that for years it relied on an ever-changing group of American and European executives to run operations in China—many of whom had a limited understanding of the local marketplace, said former and current executives.

Fourthly, failure to transform the China operation into a reliable profit generator leaves them almost entirely dependent on the US, which is also suffering from being near the end of a long growth cycle.

The company’s profits are down sharply but it is difficult to put this down solely to trade or Brexit issues. It should however be clear that they have not helped and will not do so. These policies will not help employees in either the US or the UK, and they will not help the profits of a major employer in both nations.

No prizes for advocates of “beggar-my-neighbour” policies.