Economics Digest 08.04.18

By Neel Shah and Rishi Shah

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Trade Wars: China Strikes Back

China retaliated to Trumps tariff on steel, when they imposed tariffs of up to 25% on goods from pork to wine on the 2nd April. These tariffs have affected 128 US imports into China, worth $3 billion in trade. However, the key policy concerns US scrap aluminium and rolled steel, which have faced tariffs in retaliation to US tariffs on Chinese metals.

Washington have retaliated this morning and have announced additional tariffs on 1,300 Chinese goods at a rate of 35%. However, following Washington plans, China has struck back again.

China has said it would place 25% trade tariffs on 106 US goods from orange juice to cars. The products targeted were worth $50 billion in 2017, thus tariffs will hit the US economy hard. Tariffs could be placed on everything from aircrafts to corn products according to the Chinese finance ministry.

Despite this, President Trump remains adamant that the US are not in a trade war with China. Yet, to most people, this struggle for power appears to be part of a challenge on the US’s position as the only superpower, a role China is looking to fulfil. Will China and the US reach a deal over trade? The question seems yet to be answered.


Spotify: What is it really worth?
Shares in Spotify began trading on the New York stock exchange, valuing the company at nearly $30 billion. However, the company is yet to make a profit, despite being a global market leader. Spotify is the global leader within music streaming companies with 71 million paying customers (more than double the next best competitor, Apple Music). Yet what does the changes mean for the company?

The stock based market will likely incentivise Spotify to pursue better deals from the music companies who take over half of the company’s revenue. However, Spotify remains among the global tech giants amongst the ranks of Snapchat, Facebook and Google.


GKN vs. Melrose

GKN plc is a large British automotive and aerospace components firm that has been in the news a lot recently. This is because Melrose, an investment firm specialising in acquisition/ performance improvement of underperforming firms, is attempting a hostile takeover. GKN has been in the limelight due to the historic and iconic importance of it. GKN is arguably the foremost symbol of pride for British engineering, and therefore decisions about its future are highly contentious with many different people, such as shareholders and politicians having different opinions.

Why could the takeover be bad? Melrose is a profit driven firm who can be seen as asset-strippers, whereby when they buy a firm, they ignore other impacts to the firm and only look to make money.  They change and reshape the firm to maximise profit. There could be huge unemployment (60,000 GKN employees currently) or operations moving out of the UK to areas with lower operating costs and a fall in the immensely beneficial Research and Development GKN do now. However, the government stepped in demanding that in the takeover, Melrose ensured commitment to maintaining the workforce, headquarters and R&D in the UK, and not selling defence businesses off in the short term.

Benefits: The shareholders invest to make money, however in the event of a takeover they could choose to have their shares transferred to Melrose or get paid a good price for their shares. Thus, it could provide a monetary incentive for the shareholders. The fate of GKN was decided by a vote of shareholders, and it seems as if this £80 billion takeover will be happening…


Falling house price growth

House price growth in Britain, namely London, has continued to cool, and a Nationwide report showed a 1% fall in prices 1pc every year. It could be due to the wage growth not keeping up with inflation, and therefore low consumer confidence. This means that people do not change house as often and this fall in demand signifies a fall in house prices. Crisis? Probably not, due to the general lack of housing supply in the economy and low unemployment rates, will cumulatively ensure that house prices will not spiral out of control.