Nobody doubts the ability of the great US-China trade war to generate headlines, move markets and dominate investors’ mood. After an enormous fanfare, though, the “phase one” trade deal landed limply. There wasn’t much there.
There was, it should be said, a showy number: a requirement on China to boost its purchases of US goods and agricultural products by $200bn (£153bn) compared with 2017 levels. But it’s over two years, not one, and most analysts took the view that they’ll believe it when they see it.
“We doubt that China will be able to raise its imports by this much,” said thinktank Capital Economics. Well, quite. Beijing may run a centrally planned economy but it’s still hard to re-invent supply chains overnight. Moreover, as analyst Louise Cooper noted, some of the supposed gains from the US trade agreement would have happened anyway: China wants US dairy and infant food formula because locals, wearied by various scandals, don’t trust the local produce.
Meanwhile, tariffs have not been abolished, just lowered slightly. The US will keep 25% tariffs on $250bn-worth of Chinese imports and 7.5% on $120bn-worth. China has its own tariffs in the other direction. So, if Donald Trump wants to re-raise tensions for whatever reason – Chinese foot-dragging or his own perceived electoral advantage – there is scope to do so.
As for Beijing’s commitments to enforce intellectual property rights and refrain from huge state subsidies for preferred industries, it’s unclear what’s actually involved. The most sensitive areas evolve constantly. Broad principles don’t mean much unless both sides define specific applications of rules.
Financial markets took the ho-hum view that agreement on any form of deal is better than nothing. Even if Trump doesn’t seem to have secured much, investors would rather hear the president declaring a triumph for “economic justice and security for American workers”. One aggressive tweet towards Beijing in a few months’ time could change that view in an instant, however. It’s very possible.
Semi-profits warning highlights Pearson’s digital problem
It was a suitably pained way for John Fallon to start his last lap as chief executive of Pearson: a semi-profits warning.
It wasn’t a full one because the educational publisher hadn’t previously put its name to a formal forecast for operating profits for 2020. But the number, when it came, fell short of City expectations of £600m-ish. Pearson thinks it can manage only £500m-£580m.
After six real profits warnings in the past seven years, perhaps investors shouldn’t be too surprised. The trouble is, this time last year they had swallowed the idea that Pearson was finally winning its long struggle to manage the switch from print to digital in the US college textbook market. The share price had reached 900p. Now, after Monday’s 9% fall, it stands at 563p, within pennies of a 12-year low.
Nobody would describe the textbook trouble as easily solved. Pearson’s striking statistic is that it sold 21m printed textbooks a decade ago, versus 3.7m in 2019. Given that those hard copies cost $60-a-pop on average, an awful lot of profit has to be recovered via cheaper digital versions. Pearson, though, even amid frantic cost-cutting, always seemed surprised by the pace of change in a division that accounts for a quarter of its revenues.
The contrast with Relx, the old Reed-Elsevier, which used to be seen as Pearson’s stuffier publishing cousin, is stark. Relx operates in the world of academic journals and legal information, which may be a gentler environment but the digital revolution has been just as intense. Relx’s shares have quietly quadrupled in value in a decade. The two companies now play in entirely different leagues.
Carillion failure shows why government should be on its toes
The private finance initiative, let’s hope, is now discredited as a way to build hospitals. But, amid the Carillion failure, there is a small consolation. The public sector is only expected to pay 1% more in real terms across the two big PFI projects that Carillion left uncompleted – the Midland Metropolitan hospital in Sandwell and the Royal Liverpool university hospital.
That’s the verdict of the National Audit Office, but the good(ish) news ends there. Although the report made no recommendations about what should have done differently, one conclusion should be obvious: ministers and departments should monitor these vital jobs more closely.
The government was shockingly unprepared for Carillion’s failure. It took months and months to find alternative contractors and those delays added to existing delays. The losers, in ways that aren’t measured in a purely financial tally, were NHS staff and patients.
