Here in the U.K., we often say that when the American economy gets a cold, Britain gets flu. Even though that phrase was originally coined decades ago, the premise is still relevant in 2018. However, it’s a little too simplistic for a complex world undergoing huge change not least the challenges to advanced co-called stable western democracies. The world is a much smaller place thanks to globalisation and the social media revolution, and in time a diminishing west will eventually give way to a stronger east both politically and economically with unimaginable consequences for society to say nothing of the changes that AI and automation will bring. Although the predicted shift of power from west to east is challenged regularly in the media, like all seismic change, the process has been underway for decades and therefore is best viewed on an evolutionary continuum, much to the anxiety of those of us living in a relatively prosperous west.
Each morning may bring another gasp when we awake to hear the latest missive from America’s tweeter-in-chief and without fail the ensuing turmoil unfolds churning out conflict, confusion, contradictions, obfuscation but most importantly, intended distraction, the current modus operandi. The ‘America First’ policy in relation to foreign affairs brings limitless challenges. A state of flux in America’s standing in the world has enormous ramifications not least because as leader of free world, it plays an outsized political role in Europe and Asia mostly for reasons of security and trade.
The list of critical issues on the president’s to-do list are too numerous to mention in this short piece but include; the on-off date with North Korea, more destabilising of the Middle East with the siting of the American embassy in Jerusalem, abrogating the Iran deal to the consternation of Europe and Iran’s neighbours, health care reform, race relations, as well as the gun control crisis which is killing far more Americans than any terrorist assault.
If global is local and the market likes stability this begs the question about the relative stability of the market eighteen months into a new administration seemingly addicted to pantomime. Utterances about the global and domestic economy cause consternation at home and abroad. Nonetheless, the world’s pundits continue to seek economic logic where none exists because this president’s instinct is capricious driven by political and personal impulse.
Nonetheless according to this week’s Economist, corporate America continues its love affair with Trump – for now – but the warning is clear, current wins for big business are likely to be short lived. Long term the consequences may not be so rosy given that interest rates are rising in the U.S., the deficit is ballooning and a recession is likely in the next few years: “In a downturn, American business may find that its fabled flexibility has been compromised because the politics of firing workers and slashing costs has become toxic”. Despite the president’s promises of major infrastructure spend, little progress has been made as anyone using a taxi to get from JFK into Manhattan over the four decades can attest.
Although supported by a Republican Congress, the president has been unable to introduce any major legislative change (phew) with the exception of November’s fiscal corporate giveaway. Trump’s grassroots supporters seem slow to realise that corporate tax relief does not necessarily translate to higher wages or more jobs. It is worth recalling that this administration’s emphasis has been on job creation as opposed to wage increases. As well as being hostile to foreign trade, Trump is indifferent to technology and education and continues to favour analogue solutions in a digital age. Evidently, a key priority is tax cuts for the wealthy while appointing financial tycoons to the cabinet, those who are indiscriminately hostile to regulation.
Specifically, the administration is on a mission to loosen regulatory levers on business heralding a de-regulation binge that no-one could envisage, such as the reversal of parts of Dodd-Frank requirements, meaning that the lessons learned from the 2008 financial crash and the restrictions put in place to avoid another crisis have all been scaled back significantly. Efforts continue unabated to privatise education, cut social security and de-regulate social care. It is no secret that senior members of the current administration have financial interests in nursing homes and prisons for example, which should raise conflict of interest concerns about the scrapping of certain regulatory controls on nursing homes alongside the expansion of prisons. Par for the course was the appointment of a climate change denier to the Environment Protection Agency and the subsequent withdrawal from the Paris Climate Change Accord.
As regards trade, undoubtedly, China’s strong-arm tactics particularly in relation to intellectual property rights need substantial reform, but preferably best attempted via diplomacy alongside a beefed-up WTO rather than trade wars. Perhaps it’s becoming clear to Americans that it’s not easy winning trade wars contrary to the president’s assertion in his combative, transactional style. Trade deals where the advantages are mutual rather than ‘winner takes all’ mentality historically foster more fruitful relationships avoiding conflict and hostility, even war. There are no winners in a tat-for-tat trade war. Protectionist policies in an integrated global supply chain would leave America more isolated from its trading partners with Americans paying higher prices for most goods imported or otherwise. According to the World Politics Review, the America First policy is the “foreign policy equivalent of junk food: filling, but not nutritious, and ultimately the cause of serious health problems”.
Having said all that, come November mid-term elections, power in Congress may well shift to the Democrats (a one in three possibility according to the Economist) and the road to impeachment of the 45th president picks up the pace. More instability will ensue and in theory this means less power in the hands of the President (we must be grateful for small mercies). He will not hesitate to take full advantage of Executive Orders though they have their limits. There is a chance, of course, that he may well throw in the towel by then.
Leaving aside the whirlwind of American politics and its ramifications for the rest of the world, closer to home the Eurozone richochets from one crisis to another while Britain has its own set of seemingly unsurmountable challenges. The British government muddles along in its determination to fulfil the majority’s petulant desire to break ranks with the European Union. Ireland’s border will continue to hold sway in negotiations with the Commission, and Scottish independence is on its own evolutionary path swerving from fast to slow lane. In my own view, despite the best efforts of the ‘Remain’ campaign, they failed to adequately and concisely convey to ordinary voters the benefits from being part of the club. This was aptly demonstrated when the British Prime Minister needed European support to take action against Russia after the poisoning of the Schripals in Salisbury and following alleged social media interference in the EU referendum. Undoubtedly, reform is needed in the EU institutions as well as a robust debate about the wider European integration project though perhaps not to the extent that President Macron might envisage. A hands-off American approach when it comes to Russia brings into sharp relief the need for European neighbours to pool resources and consolidate in order to contain an increasingly aggressive and manipulative Putin.
Speaking of Russia, Bill Browder’s* herculean effort to convince nation states to implement Magnitsky law continues apace and is now on the statute books in seven countries so far including Denmark, Ireland, Canada and the U.S. and just last week was given royal assent in the U.K. though the European Union seems slow to act. This might well be because of the complexity of relations between Russia and its European neighbours, for example earlier this week a disbelieving world watched coverage of the fake death of a Ukraine journalist, a vision that made by eyes ache. These Magnitsky legislative measures require governments to take action to filter out dirty money. Perhaps the burden of proof is on Russian billionaires to demonstrate that their finances are in order otherwise residency visas are put in doubt. This became apparent in the last few days with Roman Abramovich’s visa troubles, seemingly his close links with Putin have been ringing alarm bells in the west – though no allegation is being made by U.K. authorities that he or Chelsea Football Club has been involved in money laundering. From an investment perspective, this might suggest that billions of roubles invested in London may be seized, assets confiscated and the vast number of top end properties in Kensington, Chelsea and Surrey owned by Russian oligarchs are likely to be impounded. It is not unreasonable to expect that the 46th American president will challenge Russia unlike the current incumbent and therefore will be more inclined to exclaim ‘nyet so fast’.
And finally, my pessimistic side is concerned about the long-term damage done to America’s standing in the world and the fallout from this administration not least the repercussions of withdrawing from multilateral agreements, threats of trade wars, issues of trust and tone and the questionable attempts at cozying up to dictators often on a whim. Any agreement with North Korea is likely to be for the pursuit of the optics for the two mavericks concerned rather than a serious attempt at denuclearisation. This American administration continues to hand propaganda victories to a regressive regime with no visible wins for America – the denuclearisation meeting has been downgraded to a ‘get to know you’. Containment in the South China Sea will no doubt be top of the list for the next president. On the optimistic side, as an idealist my hope is that the west invests heavily in soft skills i.e., diplomacy, a skill that is in decline in the U.S., for example, dozens of American ambassadorial positions remain to be filled in critical areas of the world. Efforts to engender peace not war and protecting the environment should surely be the ultimate purpose of governments east and west. As French President Macron said in his recent address to the U.S. Congress: “There is no planet B”.
In decades to come hopefully we will look back on this period of history and see it as a transitory aberration because ultimately, I have faith in the American people to do the right thing – the power of the people is so much stronger than the people in power. Therefore, I make only one prediction and that is in next couple of years America’s pendulum will swing back forcibly from the hard right and many of the retrograde changes put in place by the current incumbent will be reversed similar to the way the 45th president is attempting to do with his predecessor’s legacy.
A bumpy ride ahead perhaps but ‘twas ever thus.
*Red Notice is the book by Bill Browder which explains all you need to know about Russia and Putin’s leadership.
31 May 2018