Predicting where we go from here is impossible. In one scenario, Trump could do more to reduce carbon emissions than all 25 COP conferences combined if we see a collapse in global production. In another scenario, we could see a wave of trade liberalisation as countries scramble to find new markets with each other and trade deals, which traditionally take years to negotiate, appear out of nowhere. Events are now being driven by unintended consequences.
One of the overlooked reasons Trump’s tariffs have unravelled is the prosaic problem of administering them. Nine years after Brexit and we have still not figured out how to implement controls on goods coming into the UK; expecting US Border and Customs to implement complex tariff systems with a few days’ notice was always going to be problematic before you even look at the question of country of origin. A blanket of 10% is simply much easier to administer. We will see the same issues with exemptions on computers and phones. While we have witnessed backtracking, I am not convinced Trump is finished yet.
Part of the reason Trump has been attractive to voters is that there is always a seed of truth at the heart of the narrative. The seed of truth in this instance is that the Global economy has not worked for everyone. In theory, after production shifts to low-cost countries like China, those cost benefits should be reduced and equalised over time as economic growth creates a middle class and the economy shifts from exports to domestic consumption. The problem is this doesn’t happen if the country is an authoritarian one-party state. The CCP has continued to suppress worker rights to maintain its production advantage, creating a growing global economic imbalance which has to unwind somehow.
The big question now is whether the US is serious about a full-blown trade war with China.
The tariff policy may make sense if you understand the exceptionalism of US supremacy that runs deep in the American psyche.
The threats to US supremacy and exceptionalism over the last 50 years have not been military; they have been economic. Think oil dependency, the economic rise of Japan and then China, European economic unity, the concentrated wealth of autocratic states and kleptocracies, and most importantly, the perception that the US has allowed itself to become dependent on others.
The political calculation behind tariffs may not be economic growth but economic supremacy. A trade war is exactly that – a war. Wars are lost, not won. Victory is achieved if tariffs destroy the Chinese economy at a faster rate than they destroy America itself. The risk is that Xi in China may see this as his moment to exert full control over the Chinese population and pursue a more aggressive expansionist agenda. XI knows that to survive, China has to become self-sufficient in energy, food and technology. How he decides to try and achieve that is the big question.
The miscalculation by Trump makes it look like they did not expect the rest of the world to club together. One-on-one, the US is going to win any trade war, but faced with countries working together, the US looks a bit more vulnerable.
Noises about a US-UK trade deal are now coming out of the US administration, suggesting that the US has realised it is going to need at least some alliances. Looking first to Japan and the Anglo-Saxon world was always likely. The relationships between the Anglo-Saxon countries run deeper than political ideology. This gives the UK perhaps its only chance to get a trade deal with the US on favourable terms – i.e. without the US farming and healthcare lobbies holding sway.
There is a scenario here where the UK is one of the winners. As energy, transport security, political stability, and technology become more important production factors than labour costs, a UK that can tread a path between the US and EU has a lot to offer. The fact that the EU will need the UK onside in terms of security means that we may be in the unlikely position of being courted by both sides after a few years in the wilderness.
The world has indeed changed. The global economy was on a path to deglobalisation beforehand, whether we see a return to the status quo or a genuine unravelling and rebuilding remains to be seen. Would all the UK political parties have been united in the nationalisation of UK steel if it wasn’t for Trump? There is less risk now when China has bigger fish to fry than penalising the UK for blocking its interest in UK Steel.
The UK needs to prove it can now move at pace and build energy and transport infrastructure and housing. Trump has given political cover to increase borrowing for capital investments, and the UK government should seize it.
The big political lesson from all this is that there is little love amongst voters for maintaining the status quo, even if the alternative is chaos.
*Back to the Future II reference for those not old enough.
