What the football world cup and GE`s position can teach the USA`s tariff moves

The last week in the global arena has been dominated by two major news items one of which the global trade wars with the US announcing tariffs on imports on many items mainly on China and  the other major news item is centered around Russia – not anything to do with Vladimir Putin but due to ongoing football world cup! The other news items, probably not so major, but which has got hidden in this noise is that the iconic US behemoth General Electric has been moved out of the Dow Jones 30 index for the first time since 1907 and the new age iconic company Apple is within a kissing distance of the one trillion market capitalization mark.

As this blog is being written, the world cup football has seen a number of upsets with the major countries struggling against well-organized lesser known teams. Germany lost its opening match, Brazil drew its opening match before scrapping through in its next match, France has struggled, Argentina is practically out of the tournament and only Portugal have managed to do well only due to the individual brilliance of Cristiano Ronaldo. The lesser known teams like Mexico, Iceland, Switzerland, Nigeria and Croatia, who have never won the world cup before, have knocked the winds out of the sails of the big teams. 

Big teams have big names who play for most part of the year for the rich big European clubs, where they earn huge amounts of money, while country games are second priority for them. National teams which are too dependent on these superstars are unable to work as a cohesive unit. Messi`s body language while playing in the La Liga for the Spanish club Barcelona is positive while he has looked to the contrary while playing for Argentina while the Brazilian star, Neymar Jr, who attracted attention as the world costliest player when he moved to Paris St. German team in the French league, too has been found wanting in the world cup. Cristiano Ronaldo has been an exception but the Portuguese team is too dependent on him and soon teams can sort him out. Iceland, which has a population of only 300,000 and Mexico, Croatia and Russia, despite no superstars like Messi, but with their great teamwork and swift game have surprised their larger rivals with surprisingly good results.

What explains the sudden surge of the smaller teams? Firstly, many of their players play in the competitive leagues and rub shoulders with the best and hence acquire great technical skills. Secondly, since they want to prove themselves as a nation, they are able to gel well as a team without any egos. Thirdly, with the interconnected world, coaching skills, support systems and knowledge are easily transferrable which help the smaller teams. If this trend continues in this world cup, who knows we might have a surprise winner of this world cup.

General Electric, the US industrial behemoth and the epitome of US capitalism, has been seen as a sign of a progressive and a global business firm and cynosure of all eyes for its management talent and shareholder returns. Jack Welch, the company`s CEO from 1981 – 2001, was the epitome of the CEO`s across all times. However since the turn of the century, GE `s financial performance has been overtaken by new age companies like Apple, Google, Facebook, etc. The financial crisis of 2009 hit GE capital, the finance firm of GE, pretty hard and with the decline in its power business the company was forced to hive some of its assets to stay profitable. Due to its share price sliding down by more than 50% in the last 2 years, the GE stock will be removed from the Dow Jones – 30 index from end of June`18. Quite a fall for the behemoth! Nowadays asset light and technology oriented firms command better valuations as compared to previous superstars and industrial behemoths like GE and Exxon Mobil.

The US government has imposed tariffs on a number of items, especially targeted at China, and has sparked a global trade war. The position taken by the US government is that, the US being a superpower, has been taking the responsibility of the world for a long time at the US`s cost and its own people`s jobs. Hence by imposing tariffs, the US government proposes to reduce the trade deficit of the USA and secondly, the US is clamping down on immigration and outsourcing, to create and save local American jobs. Fair enough! 

However, the US economy thrives on consumption which is fed by cheap imports. Secondly, the innovation culture in the US is driven by the soft power and knowledge skills of various immigrants which has led to the US being in the forefront of technology and industrial development. By taking the recent clampdown moves, the US risks getting isolated from the world which can reduce its negotiating power across the globe. Secondly, with the transfer of knowledge becoming easier and world being more integrated, many non US based and fleet footed firms can challenge the US firms.  Thirdly, China has grown to be a global superpower since the dawn of the century and has been focusing on technology and IP development on top of its manufacturing base. Similarly India too has grown by leaps and bounds, while other nations like Indonesia, Russia have strong economies.

These countries can hence challenge the US very much like the smaller teams in the world cup football and hence the US can meet the same fate as GE in case it takes its superpower status to the extremes.

Mr. Trump- hence watch football world cup and be careful!