Turmoil

Redwood Comment
Published:  21 May, 2019
Dr Mike Redwood

Being in the UK right now is difficult. It is not so much that the nation does not seem able to manage leaving Europe, which after all is little more than the complexity of a very divided country, but rather the comprehensive lack of vision coming from any quarter regarding the future role of Britain in the world.

Yet for many companies, and most involved in leather, the bigger issue is not the EU and the UK, but global trade that creates the greatest concern. As the societies in the Soviet Union and China began to transition towards greater levels of privatisation and economic growth at the end of last century, there was an assumption of steady progress towards greater democracy and capitalist economies. That this was a false assumption has been clear for Russia for some time and, in China, the final nail in the coffin of the concept was inserted in early 2018 when by a vote of 2,964 to two (with three abstentions) Chinese President Xi Jinping had the term limits removed from his Presidency. The two-term limit established in the 1990s would have required him to hand over to a successor in 2023.

What we are now starting to see looks more like a battle of the underlying philosophies than a simple zero-sum trade war with an easy conclusion, and it is already proving uncomfortable for the leather industry. Almost everything to do with the leather business in the U.S. has for many years built on international trade and America has championed this as the right, if not the only way, for the world to do business. Hides are exported and finished goods using leather are imported. There has been environmental disquiet at shipping goods so far, especially salted hides, and some adjustments have been made but the role of international trade and its benefit to world GDP has been mostly undisputed.

The relentless rise in costs in China over the last decade, and the nation’s shift towards a consuming society rather than a producer has already got most companies, Chinese and international, re-examining supply chains. Hence, the investment in Africa from Chinese tanners and shoemakers seeking lower costs, and the growth in footwear production in places like Vietnam, Bangladesh and Portugal. So this new disruption, temporary or not, is most unwelcome. An outcome of the domestic changes in China as labour costs have risen has been the push by China into advanced technologies related to Industry 4.0 and all the communications apparatus that goes with it, needed if China is to avoid the middle-income trap as it grows.

It is these futurist technological areas that frighten the U.S. and others. Looking back on history most countries, including the U.S., the Netherlands, Switzerland and the UK got their industries going via protectionism and stealing Intellectual Property for a period. But these are different times and we are dealing with technologies of immense reach and power, the implications of which are mostly still unclear.

A United Kingdom would have difficulty identifying a wise strategy in all this, never mind a disunited one. For the leather industry we should not expect a return to normality any time soon: and plan in case the outcome is an unpleasant “decoupling”.

Dr Mike Redwood

May 21, 2019

mike@internationalleathermaker.com

Follow Dr Mike Redwood on twitter: @michaelredwood

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