In this week's Commercial Awareness update, we discuss Trump's tariff hikes, Uber's IPO, Vodafone's planned acquisition and how millennials are misjudging their inheritance.
Trump's tariff hikes
US President, Donald Trump, has announced they will raise tariffs from 10% to 25% on $200 billion worth of Chinese goods, as the trade war between the two biggest economies intensifies. Trade talks have been taking place between both leaders and many hoped that this would lead to a trade deal, but this is yet to materialise. This means that US businesses will have to pay 25% to import goods like clothes, some foods and footwear from China, making it significantly more expensive. The Chinese government has already said it is planning tariff measures of its own, which is likely to lead to both countries being worse off - with one of Trump’s economic advisors publicly advocating that this would be the case.
So why do it? Firstly, Trump doesn’t believe it will have a major impact on the US economy and believes that their trade deficit is too big (i.e. they import far more from China than they export). This isn’t necessarily a bad thing, but Trump believes this is over-inflated due to unfair practices, including state supported companies being able to keep prices artificially low and the theft of intellectual property from US companies.
Overall, for business and consumers, the new hike in tariffs means businesses will have to absorb it in their profits and/or pass it on to their customers in the form of price rises.
Questions to ask yourself... What are the potential advantages to the US of raising tariffs on Chinese imports? Who has most to loose from a trade war - China or America?
Companies to watch
Transport giant, Arriva, is suing the government after their failed bid to acquire the East Midlands railway franchise. The company, who is owned by Germany’s state backed Deutsche Bahn, has stated that they are “seeking to obtain more information relating to how the bids for the East Midlands franchise were assessed”. The Department for Transport has stated that it has “total confidence” in its franchise competition process and would “robustly defend decisions that were taken fairly following a thorough and impartial evaluation process”. This statement came after the department stated that Dutch Government owned firm, Abellio, had won the bid of running the East Midlands franchise for the next eight years. This follows after rival, Stagecoach, announced that they were taking legal action against the department after they were banned from rebidding, stating that the company had “no option” but to pursue legal action to get the bottom of the department’s “opaque decision making”.
Ride-hailing giant, Uber, entered the stock market last week with one of the largest and highly anticipated American initial public offerings (IPO) ever. However, the car company failed to impress investors as shares plummeted, closing 7.6% down on their first day of trading. Uber raised over $8 billion through their IPO, valuing the company at around $80 billion - but this was significantly below the $120 billion investment banks initially suggested Uber was worth. Furthermore, Uber’s asking price for shares started at $45 each - by the end of the session, shares were at $41.51 each.
Investors are likely to be cautious regarding Uber and may believe that, like competitor Lyft, they will never make a profit. Uber’s initial value on Friday was seven times its 2018 revenue - comparably lower than Lyft’s eight time increase. However, since Lyft went public, there has been a 30% drop in their share price. Investors in this arena may be wary of the future of automated driving and whether the companies can keep up with this accelerated change.
The world’s second largest mobile operator, Vodafone, has taken a one step further to acquiring US rival, Liberty Global. Last year, the British telecoms giant, signed a $22 billion deal with their competitor, buying their cable television businesses in Germany and Eastern Europe. If the proposed deal is approved by regulators, it will be the largest deal in European telecoms in over a decade. The deal has been approached with scrutiny as the union of the companies will mean one less operator in the telecoms field. This could potentially create negative consequences for consumers and lead to unfairly high prices as the market would be less competitive. Therefore, the deal is being looked at carefully by regulators. The deal, however, is likely to be very good news for Vodafone - as with one less rival and greater market share, Vodafone could provide its investors with higher sales and profits.
Questions to aks yourself... Should the railways be re-nationalised? Was Uber valued too high for their IPO? What advantages could a merger provide to customers of Vodafone?
Are you misjudging inheritance?
A new survey has found that a majority of millennials are misjudging the amount of inheritance they will receive, when they will receive it and what they will be able to do with the money. Wealth manager Charles Stanley found that young people on average expect almost £130,000 from relatives, but the median for inheritance is more likely £11,000. Around one in five millennials believe they will use the money to invest in a deposit on a house, however only 7% currently do.
There seems to be a wider concern that across the population of the UK, there’s a lack of knowledge of how much they will need for retirement and how much/how they will be leaving money in inheritance. It is thought that up to 30 million people currently don’t have a written will, let alone an idea of how much they might leave.
Question to ask yourself... Should more to be done to educate people on their money and financial planning?
Saving the pennies
Finally, the Chancellor Philip Hammond last week said there was a future for the 1p and 2p coins, after many thoughts they could be on the way out. The decision not to make any changes to the country’s make up of coins and notes was part of a wider survey into people’s use of digital and cash payments. It found that despite a significant surge in digital payments, 2.2 million people are still fully reliant on cash.
Previous research suggested that six-in-ten 1p and 2p coins were used once and not used again - often to be put in a jar or similar. Plus, only 12% of products are sold at a price which ends in 99p. This led to speculation that Britain’s lowest denominations would be taken out of circulation, but this won’t be the case for the next few years.
Question to ask yourself... Should the UK be pushing towards becoming a cashless society?