Bearing in mind that I don’t own a TV, I still contend that I’ve detected a discernible shift among advertisers of manufactured goods, in that they’ve become more focused on quality and supply-chain transparency.
I would venture that the change in emphasis from mass-consumption price points in favour of ethical sourcing and durability isn’t primarily a response to changing consumer preferences. Instead, I think it heralds a change brought about by tightening global trade constraints.
Firstly, we shouldn’t confuse the new consumer focus on quality and provenance with the usual ‘Buy British’ campaigns, if for no other reason than any change from globalism to regionalism on the trade front is unlikely to result in fast fashion giving way to Savile Row tailoring. To her credit, chancellor Rachel Reeves has explicitly rejected calls in parliament to launch an official consumer ‘Buy British’ campaign, even in response to the imposition of last year’s ‘Trump tariffs’. She has insisted that it isn’t the job of government to dictate consumer spending; a laudable sentiment, although one that would probably bemuse manufacturers of tobacco products, gas boilers and cars powered by internal combustion engines.
If nothing else, our freewheeling chancellor’s commitment to global trade shows that she was paying attention to the ‘comparative advantage’ module when she was studying at the London School of Economics.
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Rather than a crude appeal to consumer patriotism, the change in advertising focus might signal that western economies are abandoning the multilateralism typical of the World Trade Organization, in favour of trade arrangements characterised by tariffs, quotas and anti-dumping legislation.
Unfortunately for consumers, a swing towards protectionism usually translates into higher prices for manufactured goods, hence the need for advertisers to push the quality angle, which also extends to supply-chain considerations and sourcing.
The issue of economic sovereignty has been rising up the flagpole ever since Donald Trump’s first term in office, but the promotion of state-led industrial policy certainly gained impetus through the pandemic years. Now, there are signs that the erosion of Germany’s industrial base – the financial bedrock of the European Union (EU) – could push the trading bloc towards further interventionist measures.
Autotrader (AUTO) has just revealed that electric vehicles (EV) accounted for 30 per cent of UK new car registrations in June, which, combined with those for plug-in hybrids, outstripped those for purely petrol-driven vehicles. Tesla (US:TSLA) and China’s BYD (CN:002594) – rather than Bavaria’s automakers – were among the chief beneficiaries, although advocates of electric motoring shouldn’t get too carried away. Registrations are still lagging behind the government’s zero emission vehicle (ZEV) target, while manufacturers still rely on heavy discounts and incentives to stimulate demand.
Nonetheless, the more inroads that China’s EV manufacturers make into European markets, the lower the share given over to Germany’s automakers. Matters haven’t been helped by the latter country’s confused energy policies, most pointedly its premature phaseout of nuclear power. The country’s rearmament programme has taken up some of the slack in terms of industrial output, but, significantly, Berlin has done an about-turn on state-aid provisions, while boosting targeted state spending by €500bn (£442bn) over the next decade.
Matters have been made worse by low-cost components from China that are now flooding Germany’s supply chains. This is undermining the commercial viability of the country’s fabled Mittelstand; the small and medium-sized (often family-owned) enterprises (SMEs) that form the backbone of the German economy.
Economists have made the charge that Germany’s SMEs have adapted too slowly to AI and data-driven developments, perhaps a reflection of the typical age demographic of owners in this space, but the reality is that EU mandarins should be paying more attention to the level of state subsidies that Beijing offers under its “10,000 Little Giants” supply-chain initiative.
I dare say it’s a mistake that the US president would not have made, considering the punitive measures his first administration undertook to curtail the dumping of China’s excess steel on US markets.
Germany has been shedding thousands of manufacturing jobs every month, so it’s inconceivable that the EU won’t take a harder line on subsidised imports from China, assuming the EU Commissioners know which side their brot is buttered on.
And with chancellor Friedrich Merz’s ‘fiscal bazooka’ in the offing, it’s worth remembering that Germany’s MDax (mid-cap Dax) index is now trading at a historic discount to the country’s domestic large caps and broader European benchmarks (see chart above).
Whether this represents an enticing opportunity to gain broad-based exposure to German industry probably depends on the degree to which Brussels is prepared to prop up its star economy.