Xenophobia never really goes away. Fifty years ago British MP Enoch Powell delivered his infamous “River of Blood” speech; it was nothing less than an epic oratory against the mass immigration that he claimed was turning his beloved white Britons into a minority in their country. The Beatles were so keen to make fun of what they saw as his blatant racism that their song “Get Back” originally had as lyrics, “we don’t dig no Pakistanis taking other people’s jobs.” Its original chorus imploring minorities to return to their home country, however, “get back to where you once belonged,” remained in the final version.
In the end, as the Beatles changed their lyrics and remained politically neutral; England prevailed, and its economy grew — and many of its citizens improved their financial standing, even without taking any of Mr. Powell’s advice. Then Margaret Thatcher arrived and rationalized and privatized everything.
But by then England had been part of what is known today as the European Union since 1973; it had applied for membership as early as 1961. The Financial Times wrote that Britain was “the sick man of Europe” when allowed to join. Since then, again according to the Financial Times, the British society’s economic trend since joining the EU has been positive; it moved into net plus growth starting in the early Eighties, where it continues to this day.
With that kind of long-term success, one has to wonder why certain factions within England demanded a vote to exit the European Union in order to strike out on their own again. Many of the stated reasons should sound familiar: They feared that too many immigrants were coming into the UK; they didn’t believe the EU was a cohesive and truly prosperous group; and Britons had lost faith in both political parties and international trade agreements. Some have commented that the Financial Meltdown of 2008 actually provided the spark for this economic separation, because the recovery left so many behind.
It probably didn’t help that so many brands considered quintessentially British —Jaguar, Land Rover, Rolls-Royce, Bentley, and MINI — are no longer British properties at all. Tata of India owns Jaguar Land Rover and has become the first company to operate it truly successfully. Rolls-Royce belongs to BMW, while Bentley is in the hands of Volkswagen. BMW also once owned all of Rover, but sold off the car division MG Rover to the Chinese, retaining only MINI. One can easily see why the average Brit thinks the country’s industries are under attack and being sold off to foreigners.
On the other hand, today England has the most prosperous and successful auto industry in its history, and that industry includes factories owned by Honda, Toyota, and Nissan.
At the moment, all of England’s auto industry is running along the sharp edge of total chaos, because no agreement has been reached on Britain and the European Union’s break up. For its part, Britain seems to want to divorce, but to keep everything great that it got out of being in the EU without any of the responsibilities of membership. Think of it as international friends with benefits. And their auto industry is caught right in the crossfire of all this nonsense. Articles last week reported that if Brexit and Customs delays in getting parts became a problem in the future, BMW could well shutter its production sites across England. That would put nearly 8,000 decent-paying jobs at risk. A second story, this time at Reuters, had BMW executives denying they had any such plans.
But the BBC pointed out that the Society of Motor Manufacturers has released data showing that investment in the British motor industry has fallen by half just in the first six months of last year, as executives worldwide try to define what ultimately will happen to their investments in England.
It did not help that French officials said that, last week at a European summit, they would inform British Prime Minister Theresa May that, while there has been progress toward a mutual separation, at this point both sides will prepare for the reality that no final agreement can be made. Yeah, that’s not good. Then, according to Sky News.com, May’s ex-aide and key advisor, Nick Timothy, told the Prime Minister she was headed toward making the worst Brexit deal possible and the “time for playing nice and being exploited is over.”
So, because no one’s certain what’s coming next, rumors and insiders have all stated that the British auto industry could suffer grievously because Britain left the European Union. Already it’s been proven that new investment in British auto manufacturing has fallen, while virtually every automobile manufacturer has warned the British government that a successful outcome to these negotiations is critical to their remaining at current investment levels. Or at all.
One of the byproducts of this chaos is that global automotive parts supply chains are already under strain, as manufacturers are now having to rush to realign where parts are made and which plants they will be supplying in the future. As the Wall Street Journal noted last week, the number of (parts supplier) jobs will probably end up a wash as parts supply lines are reorganized, but the net result will be higher prices and ultimately fewer choices for consumers.
And right into the middle of all of this comes the American version of Brexit, in which we break up with the entire industrialized world, at least under the treaties we had negotiated and signed in the past. If one recalls, while campaigning candidate Trump stated that virtually every trade agreement America was part of was the worst trade agreement he’d ever seen.
Almost immediately after his election he set a group of American negotiators onto improving our situation, and ours alone, with NAFTA. But then nothing much was happening about that; so, to increase the pressure on our trading partners, we put a tariff on imported steel and aluminum from the EU and NAFTA members. The EU in turn put tariffs on uniquely American items, such as Harley Davidson motorcycles.
As any good businessperson would do, Harley simply stated that it would produce its motorcycles for the EU at one of its offshore operations in order to avoid paying that 31 percent tariff on its bikes. Which caused a presidential tweet storm slamming the Wisconsin motorcycle manufacturer — even going so far as to prophesy Harley’s loss of aura and possible demise. I’m not sure I can remember any time in our history where the President of the United States publicly courted an American company’s own customers to turn against the firm in order to hobble or destroy it.
Now, under World Trade Organization rules, countries are allowed to put tariffs in place on products from countries that have tariffed their goods — in equal amounts. But again I can’t remember a time when a President threatened other countries that if they attempted reciprocity things could get much worse. And that’s just part of it. Rumors have been circulating that President Trump is threatening to put a huge tariff on European imported cars, too. Consequently, the auto industry is quietly up in arms. Moody’s Investment Service said that Mr. Trump’s tariffs would be bad for the automobile industry worldwide.
Then, upping the ante even more, U.S. Ambassador Dennis Shea informed the World Trade Organization that the United States might likely veto any trade ruling it made if that decision took more than the 90 days allowed. This brought a story at Business Insider speculating that we intend to break the World Trade Organization “in order to deal with the multi-trillion-dollar problem that is China.”
Then, in spite of an OPEC agreement to pump more oil to keep prices from rising, the U.S. issued the edict that the world needs to stop buying Iranian oil by this coming November. The price of oil has trended up ever since. Although we have backed off that one ultimatum just a bit.
Canada promptly started lobbying Detroit’s Big Three to try and talk this administration into keeping everybody’s car companies viable and profitable. Fair enough as the two major auto trade groups in this country stated on June 27 that the direction things are going will wind up raising the prices of new vehicles and cost hundreds of thousands of jobs. Hyperbole? Probably; at least, the job losses — but not the part about higher new vehicle prices. On the other hand, Bob Lutz, former vice chairman of General Motors, told CNBC that all of this was just a negotiating ploy by President Trump and that he’s not out to destroy the system. He simply wants to bring American industrial jobs back.
And Cummins, which makes many of its small diesel engines in China, apparently will have to start paying that new tariff on those products imported into the United States this month. Which is why Linda Hasenfratz, CEO of Canadian auto parts supplier Linamar, said these new tariffs, including the ones on steel and aluminum and the threatened 25 percent tariffs on new cars, will become unbearable. She too predicts that it will raise the price of new vehicles, lead to job losses in the industry, and end up putting the U.S. into a recession — and that will drag the rest of our trading partners down with us. Hyperbole? Maybe.
What is certainly true is that America is not alone in this modern, almost nationalistic viewpoint: Britain is doing the exact same thing right now. But “It’s my way or the highway” attitude doesn’t work in marriages, retail operations or international relationships, at least, not for very long. The worst part is that, while North America and Europe’s industrialized countries are all in economic chaos because of a mindset that should have died with Enoch Powell 50 years ago — after historical reality proved beyond a shadow of a doubt he was wrong — the one country that is escaping all the consequential but unnecessary turmoil is China. The one country in the world that all these other countries fear is going to take over everything anyhow.
No one knows how this will play out in the end. But when these trade and tariff fights took place in the past, any manufactured goods involved ended up with higher prices. And corporations don’t pay them, any more than the country that levied the tariffs pays them. No, any new tariff, any disruption to the supply chain or movement of manufacturing plants, always falls on the end consumer. That means the people that are cheering on this President’s plan will be the same ones who’ll pay the price of those economic demands. Although in reality, one suspects, many of those who love to see their country push others around may be those whom the economy has already left behind. They may well be the last people who can afford higher tariffs on the things they need to purchase.
Maybe all of this works out in the end and maybe it doesn’t, or any combination thereof. One thing is true and can’t be disputed: Business and consumers don’t work well under constant chaos; it ruins everyone’s long-term confidence levels.
Still, the issue is still China. So putting things into motion to prepare for that world-wide competition is the only thing even worth considering at the moment. And that’s the last thing anyone is doing.
© Ed Wallace 2018
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. Email: firstname.lastname@example.org