I’m So Bored With the USA: Beware Politicians Bearing Gifts  

 

 

“Like Judas of old 

You lie and deceive” 

 

 

Trump’s big economic dream was based on tariffs. 

 

His campaign was based on promises to his MAGA followers, such as: “ “Starting on day one, we will end inflation and make America affordable again, to bring down the prices of all goods”: “Prices will come down. You just watch: They’ll come down, and they’ll come down fast, not only with insurance, with everything.”  

More details on his fantasies can be found at: 

https://doggett.house.gov/issues/trumps-economic-promises-timeline 

Trump isn’t using tariffs to promote global trade or to boost the US economy, but, in part, because Congress has delegated this power enabling the president to impose or waive tariffs at will. One of the big wins this provides, is the ability to increase government income without congressional oversight. 

Tariffs are a regressive tax on consumption, shifting the tax burden away from the very rich, like Trump himself, on to the middle and working class. Taxes on consumption impact most of those with the least, they increase inequality. Trump’s big, beautiful tax cuts for the rich are funded by tariffs. 

They also import inflation, which usually leads to higher increasing interest rates, both of which have the greatest impact on those with the least. 

In summary, Trump’s economic promises, which were designed to help his MAGA electoral base are false, lies, misrepresentation. 

 

‘Trump’s economic promises, which were designed to help his MAGA electoral base are false, lies, misrepresentation’

 

Tariffs are back in the news, and there is blood on the streets….. 

Europe, has, or at least, appears to have agreed, a 15% tariff on exports to the US, while the already small tariffs on US goods entering the EU will be eliminated altogether. 

On the face of it this appears a big win for the US. In truth, it’s a win for Trump, but a loss for US consumers who will foot, at least part, of the cost. 

In addition, the EU has also committed itself to $600bn of US investments, $750bn in long-term fossil-fuel energy purchases and to buy more US military kit. Plans for an EU digital services tax that would impact US tech giants had already been dropped. 

Unlike China, the EU blinked first, for them any deal was better than no deal. 

France was quick to condemn the deal. François Bayrou, the prime minister, said it was a “dark day” for Europe. His predecessor, Michel Barnier, said the agreement was an admission of weakness. 

Weakness is an accurate summary as the rationale for greater European integration, such as the euro rivalling the dollar, and pooling sovereignty in areas such as trade would ensure that Europe punched above its weight, hasn’t been forthcoming. 

Europe’s economic performance since monetary union has been dismal, and the gap with the US has widened rather than narrowed. Individual countries have had their scope for independent action systematically reduced, with restrictions on state aid, procurement and industrial policy. 

The reaction of France highlights the difficulty that the EU is likely to face, with the deal needing to be approved by members states. Looking more closely at the agreement, many details remain unclear and some of the terms will prove hard, if not impossible, to enforce. For example, there is no way the EU can force private companies in Europe to invest across the Atlantic. 

The EU’s apparent appeasement of Trump highlights the risk is being too reliant on the US. 

Europe is tied to America because its economic model relies on exports, particularly Germany, which runs large and persistent trade surpluses with the US; 15% is seen as more manageable than the 30% Trump threatened. 

Secondly, the EU needs the US to help it counter the perceived threat from Russia in areas such as energy where they can use America as a substitute for Russian oil and gas. The agreement to buy more American military goods helps tie the US into Nato. 

The contrast with China, who didn’t roll over when Trump imposed punitive tariffs, is stark. Beijing countered US bullying by announcing retaliatory measures of its own, causing markets to descend into full panic mode, triggering a sharp fall in US bond prices. Faced with a financial meltdown, Trump watered down his tariff plans. 

According to the Budget Lab at Yale, since Trump took office the average effective US tariff rate on all goods from overseas is now at its highest level in almost a century: 18.2%. As I wrote in “Get a Grip”, to date tariffs have bought in C. $98 billion. 

 

‘Beijing countered US bullying by announcing retaliatory measures of its own, causing markets to descend into full panic mode’

 

The question is, who pays? 

Trump positions this fundamental shift in economic policy as a historic move away from taxing Americans toward taxing the world. Only, it isn’t. 

Tariffs are typically paid by the importer, who will, if possible, try to pass it on. Every company at every stage of the supply chain will quite literally try the push cost down the line. 

At the end of the chain is the consumer, who will likely pay the majority. The Budget Lab at Yale estimates the short-term impact of Trump’s tariffs so far is a 1.8% rise in US prices: equivalent to an average income loss of $2,400 per US household. 

To date, big firms have done their best to hold prices steady amid all the uncertainty, however, they are now starting to warn of increases. Surprise, surprise; US inflation rose in June 

As supply-side inflation takes hold, it is being exacerbated by Trump’s clampdown on migration, increasing the risk that growth will slow and inflation will rise. Share prices on Wall Street may now be reaching their peak. 

 

‘Share prices on Wall Street may now be reaching their peak’

 

Last week’s labour data showed the US economy added just 73,000 jobs – far fewer than expected – in July. This was coupled with a downward revision of the two previous months amounting to 258,000 fewer jobs and data showing that economic output and consumer spending slowed in the first half of the year. 

Clearly this wasn’t what Trump wanted to hear, therefore he fired the US Bureau of Labor Statistics (BLS) commissioner, Erika McEntarfer. He then wrote on social media that numbers were “RIGGED in order to make the Republicans, and ME, look bad” and the US economy was, in fact, “BOOMING” on his watch.  

In fairness to Trump, it might be booming for the few, and I don’t suppose he cares about the rest. 

This all suggests that the US economy is set for a downturn, with the costs of tariff and the economic uncertainty they cause, making a recession looks increasingly likely, something this column suggested in March’s “We’re Getting the Band Back Together.” 

Trump’s polices have dislocating trade alliances and his attacks on immigrants, who make-up the cheap labour the US economy has become reliant on, are causing fear and uncertainty. Both unsettle markets, which are likely to be further spooked as the economy progressively weakens. 

Consumer confidence is already low, and business investment has already wobbled due to tariff uncertainty, is to be scaled back further as the economy weakens. 

Just how much business investment has already been impacted has almost certainly been hidden by the massive inventory build-up during the May-July tariff uncertainty and the ongoing disruption to supply- chains as China seizes the initiative in trade negotiations. 

If tariff’s were one of Trump’s gifts to his supporters, then our own Trump tribute act, Reform, bear different gifts every few weeks. 

Their latest hobbyhorse is law and order, especially “supermax” prisons. 

When questioned about them, Farage said: “This is week three of the campaign. We laid out very clearly a plan. I was asked [at a previous press conference] about the cost of that plan, to which I said, how can we afford not to do this?” 

Now the supermax prisons – have we costed it, have we thought it through? It’s a debate. The point about this taskforce is we’re starting a debate, and we’d rather like it to become a full public debate too.” 

Vanessa Frake, the former prison governor who is now advising the party, said she was not calling for new US-style supermax prisons in her opening remarks. She said she was calling for the use of supermax regimes, which she said could be implemented “relatively easily”. 

Labour and the Conservatives  both criticised Farage’s latest fantasy, and Labour issued a statement saying: “Nigel Farage offers anger, but no answers. It’s farcical that Farage can’t say what his policies are, how much they would cost, or how they would even work. Reform aren’t serious and don’t have a clue as to how they would address the challenges facing working people”. 

The only issue I have with Labour’s statement is that, as far as I can see, they also don’t have a clue as to how they should address the challenges facing working people. 

Still, it isn’t all doom and gloom, some are still doing well, such as Nicola Shaw, the boss of Yorkshire Water, who has received £1.3m in previously undisclosed extra pay since 2023 via an Jersey registered  parent company, Kelda Holdings 

 

‘Nicola Shaw, the boss of Yorkshire Water, who has received £1.3m in previously undisclosed extra pay since 2023 via an Jersey registered  parent company, Kelda Holdings‘

 

Unsurprisingly, this wasn’t disclosed in the annual report of the regulated subsidiary, Yorkshire Water Services. 

Yorkshire Water said it complied fully with the regulator Ofwat’s requirements on pay disclosure and bonus payments, and that the extra payments relating to work for Kelda Holdings were paid by shareholders, not bill payers. 

In June, the government banned bonuses for the bosses of water companies guilty of the worst environmental breaches. Yorkshire was one of six companies caught by the bonus ban, after it agreed a £40m payment in March for excessive spills from storm overflows as a result of poor maintenance. It received another £850,000 fine on Thursday for pumping chlorinated water into a stream in 2017. 

Today it appears governments are there to serve the interests of those best placed to influence them. In case anyone is uncertain, that isn’t the likes of you and I. 

Labour, the party that used to represent the people, workers, the poor, is now firmly ensconced in this trap, and can’t be friendly enough the business, especially the City, the new engine of their latest attempt at reviving a moribund economy. 

The City, post-Big Bang, has become one of the great centres of vested interest, doing as it pleases, to whomever it pleases, and then crying for help when it goes wrong. 

Their latest debacle is car finance, where hidden commissions and opaque contracts abounded, leading to consumers being misled on an industrial scale. This goes back decades, and > 90% of new car purchases are financed, The scandal is based on the fact that buyers weren’t offered the best deal, but the one that earned the broker the biggest cut. 

 

‘one of the great centres of vested interest, doing as it pleases, to whomever it pleases, and then crying for help when it goes wrong’

 

Last October, the court of appeal saw hidden commissions as tantamount to bribes – secret incentives to push pricier loans, putting banks on the hook for C. £40bn in compensation.  

The lenders were horrified, and there was all sorts of fears that their reaction would destabilise lending, finance offerings, etc., leading to rumours that the government would legislate in the lenders favour. This was covered in “Hate to Say I Told You So”. 

The supreme court saved the day, overturing the ruling of the court of appeal, and reducing the potential compensation to C.£9bn, with individuals probably receiving less than £950 in compensation. 

Chancellor Reeves may argue that she was seeking to protect financial stability, but it is not a good look to be siding with lenders over misled consumers. Her comments advising justices to “avoid conferring a windfall”, shows where her priorities are. 

Also, this is another example of the regulator, the FCA, being asleep at the wheel. Lets hope they do better when the governments Leeds Reform allow for more aggressive promotion of investment products.  

If Reeves is going to have her financial services bonanza, there needs to be a government supported consumer-facing system of redress. One that doesn’t shield the City from the consequences of its own mis‑selling and greed. 

This is just another situation that highlights how skewed the system has become. Another example of government seeking to further the interests of the rich, and business over the person in the street. 

 

“He just loved to live that way 
And he loved to take your money” 

 

‘This week we focus on Trump’s tariffs and their impact on the US economy. In a word, recession.

These were part of his big promises to his Maga base, but, as many reported, they are just there to get him the votes he needs, whilst the beneficiaries are himself and the rick cronies who are part of his court.

Reform and Farage, our tribute act, are doing similar; running round promising everything to everyone. None of it is costed and is based on dreams. Or nightmares, depending on how you see it.

In days gone by, Labour would have been the party to counter this. The party of the workers.

Today, they have been seduced by the bright lights of the City, vested interest and pressure groups.

The water companies act with impunity. The news that the CEO of one was paid undisclosed sums by the businesses offshore parent should surprise no-one.

Lastly, there is the car finance scandal. As the supreme court has ruled, we must accept that justice has been done. However, the fact that lenders could intimidate the chancellor to such an extent that she was considering legislation if the decision went against the lenders, doesn’t suggest the person-on-the-street is her priority.

The thought of returning to a lightly regulated City fills me with terror.

Lyrically, we start with Bob Dylan and “Masters of War”, we play-out with the Clash and “Bankrobber”.

Enjoy, but only if you’re rich!

Philip.’

 

@coldwarsteve

 

 

 

 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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