I’m So Bored With the USA: Complete Control

 

“They meant “Let’s make a lots of money

And worry about it later”

 

Before this weeks main event, Trump’s so-called “Liberation Day”, we consider some domestic issues. This week the government continued targeting the defenceless, having already done for pensioners and the disabled, it was the turn of immigrants, with the added bonus of stealing Reform’s thunder.

 

To date, Labour have deported 24,000. All achieved without resort to Rwanda II. Interestingly, PM Starmer told us: “I opposed the Rwanda scheme, because it was a hollow pledge to working people”. No mention was made of the fact that it had been deemed illegal by an international court.

His goal is to “smash” the people-smuggling gangs, is perfectly sensible per se, except it misses the point that organised crime personifies supply and demand. If there is no demand organised crime will seek opportunities elsewhere.

Law enforcement is always one-step behind organised crime; Since 1971, the US has spent >$1trn fighting drugs, yet, today, their drug problem is bigger than ever.

To stop people smugglers you need to find a way to stop demand for their “product.”

As we welcome the new month, we are now in “Awful April”, with households bills are set to increase:

 

•   The average council tax bill is sent to increase by up 4.99%, or C.£2,300 p.a..
•   Water bills will rise by an average £123 a year, > 20%,
•   The average increase in gas and electricity bills will be £111.

 

 

As a result, the BoE expects inflation, to rise 3.7% in the late summer.

This jump in household bills will push the UK’s poorest households further into poverty, but also impacts those higher-up the food chain; the so-called squeezed middle-class.

As a result, consumers aren’t consuming, a situation exacerbated by the uncertainty caused by Trump’s tariffs which could push prices even higher.

Trumps across-the board tariffs will impact our growth; by how much depends on our response will suffer. No retaliation would mean GDP 0.4% lower this year and 0.6% next. A global trade war could push that to 0.6% and 1%.

 

‘impacts those higher-up the food chain; the so-called squeezed middle-class’

 

This brake on the government’s sought-after growth means greater stress on a public purse that is already overstretched, making autumn tax increases more likely.

Trump is betting much of his political capital on tariffs, which he believes will liberate the US from countries that have sought to get rich at the expense of the US consumer.

The prime motives for imposing tariffs appears to be two-fold. They play to his ego of being the great dealmaker, and, secondly, his view of politics as a way to create a society that favours one group over another. Tariffs are a way for him to bully other countries into doing what he wants. Within this he can use their success to, reward politically useful constituencies, big tech allies or his wealthy donors.

For us to avoid, or have tariffs lifted we are likely to have accept things such as opening our markets to US agribusiness; end the digital services tax, which impacts companies such as Amazon and Google; and make it difficult to hold AI companies, like those owned by Trump’s ally Elon Musk, liable for harm. The danger is that, as with all bullies, give in once and they always come back for more.

With the EU this situation is even more pronounced, with expectations that both Apple and Meta will face fines under the digital competition rules. The price of Meta’s Mark Zuckerberg support for Trump is now becoming clear as he expects any tariffs on EU members to include the digital rules he has fallen foul of, meaning that regulations become part of any trade war.

There is a contra argument to this. Trump campaigned heavily on cutting taxes. His trade adviser, Peter Navarro, has suggested the levies could raise an extraordinary $600bn a year. If this is correct, it is hardly consistent with offering carve-outs to every major economy that comes knocking.

The question is, will tariffs deliver what Trump hopes? History suggests not.

The Smoot-Hawley tariff bill of June 1930, is one of the most decried pieces of legislation in US history and blamed by some.

Ironically, the preceding circumstances were little different. As was the case with the economy under President Biden, the US economy was doing well in the 1920s. The bill was largely politically motivated, to appease the agricultural lobby that had fallen behind as American workers, and money, consolidated in the cities. This time around whilst the economy has been robust all the benefits have stayed at the top.

Republicans called protective tariffs “essential for the continued prosperity of the country” and Hoover, who won in a landslide election victory, promised to pass “limited” tariff reforms.

Critics of the tariffs were described as “internationalists” willing to “betray American interests”. Suggestion that the bill would harm the US economy were decried as fake news: “demagoguery and untruth, scandalous untruth.”

After the 1929 stock market crash, the final draft of the bill had morphed from the original “limited” plan to the “highest rates ever known”, according to a New York Times editorial. The average tariff on dutiable imports was 45% in 1930.

What is apparent is that the bill sparked international outrage and a backlash. Canada and Europe reacted with a wave of protectionist tariffs that deepened a global depression.

Another consequence of the bill was the presumption that a sitting US president be so avowedly anti-trade. Until today. In 1984, Ronald Reagan said: “I have been around long enough to remember that when we did that once before in this century, something called Smoot-Hawley, we lived through a nightmare”.

Given this, it is not surprising that US business leaders and economists are worried about the scale of Trump’s trade strategy; the Tax Foundation already estimates could knock US gross domestic product (GDP) by roughly 0.7% and cost about 500,000 US jobs.

“Tariffs don’t cause inflation,” the president told reporters in January. In February, he conceded, OK, prices “could go up somewhat short term”. In March that had turned to: “There’ll be a little disturbance,” which he was alright with.

The US treasury secretary, Scott Bessent, acknowledged earlier this month that there may well be a “one-time price adjustment” as a result of Trump’s tariffs. “Access to cheap goods is not the essence of the American dream,” he argued.

As was the case in the 1930, there will be retaliation. In Europe, a large majority of western Europeans support retaliatory tariffs against the US.

EU Commission chief Ursula von der Leyen said, today: “We are already finalising the first package of countermeasures in response to tariffs on steel,” she said in a statement read out in Uzbekistan ahead of an EU-Central Asia partnership summit.

“We are already finalising the first package of countermeasures in response to tariffs on steel”

 

“And we’re now preparing for further countermeasures to protect our interests and our businesses if negotiations fail.”

A YouGov survey carried out in Denmark, France, Germany, Italy, Spain, Sweden and the UK found that if the US tariffs went ahead, large majorities – ranging from 79% of respondents in Denmark to 56% in Italy – favoured retaliatory levies on US imports.

Respondents in all seven countries favoured a tit-for-tat response despite the damage they expected US tariffs to do to their national economies, with 75% of Germans saying they expected “a lot” or “a fair amount” of impact.

That assessment was shared by 71% of respondents in Spain, 70% in France and Italy, 62% in Sweden, 60% in the UK and half of Danes questioned in the survey, which was carried out in the second and third weeks of March.

Of the countries polled, Italy is an outlier, as PM Meloni is closer to Trump than her European contemporaries. As with Nigel Farage, the Reform leader, she faces a difficult decision, and one which might prejudice their relationship with Trump going forward.

Domestically, PM Starmer, is desperately trying to close a trade deal with the US, but it looks likely we will still be impacted by tariffs in the immediate future.

Whilst trade deals typically involve give and take, I suspect it will be us doing the giving and Trump doing the taking. The PM seems like a startled rabbit in the headlights clinging to history and more balanced US presidents, saying: “The US is our closest ally. Our defence, our security, our intelligence are bound up in a way that no two other countries are.

So it’s obviously in our national interest to have a close working relationship with the US, which we’ve had for decades, and I want to ensure we have for decades to come.”

Elsewhere, some of his colleagues are feeling less charitable to the US

 

‘The PM seems like a startled rabbit in the headlights clinging to history’

 

In a recent Lords debate on obesity, Labour’s Lord Brooke suggested imposing 25% tariffs on “American products which are causing us difficulties – Coca-Cola, Pepsi, KFC, McDonald’s”. The government replied that the US is an “indispensable ally”. And they say love is blind…..

Whilst I haven’t seen it the Lib Dem showing Elon Musk – “Cutting taxes for him?” – and a schoolchild – “Cutting lunch for her?” Never a truer word….

Trump isn’t stopping at just imposing tariffs and is trying to enforce his will in other ways.

A letter sent from US embassies in Europe last week ordered foreign companies and organisations with US contracts or links to obey Trump’s executive order to “certify that they do not operate any programs promoting DEI” (diversity, equity and inclusion).

Clearly, the Trump administration is trying to ramp-up the pressure on Europe across the board, including Greenland.

Interestingly, Vance’s trip does highlight that, if there is pushback the US does back down. After all the criticism, the trip was hastily rearranged leaving out the capital Nuuk and include only a “troop visit” to the remote US military base in the far north of the territory. The Danish prime minister, Mette Frederiksen, while initially timid in her reaction to the Trump administration’s encroachments, has started speaking out more volubly; last week accusing the US of “unacceptable pressure”.

The more Trump sees other countries as weak pushovers, the more he will ramp-up the pressure.

 

‘The more Trump sees other countries as weak pushovers, the more he will ramp-up the pressure’

 

Trump is playing what could amount to a zero-sum game. I think he has overestimated the US position and underestimated the opposition. He is making the classic mistake of fighting on too many fronts. There will come a point when the opposition just ignores the US and trades with each other.

There is also the fact that US has $36.7 trillion of outstanding debt. This gargantuan amount is sustainable as long as the US maintains one advantage: globally every commodity, good and service is effectively priced in dollars. When businesses receive dollar payments and profits, they invest, or deposit them into banks who invest, these dollars into the “risk-free”, US treasuries.

However, this virtuous circle is starting to unravel, China buys oil from Saudi priced in Renminbi.

At home there is also the beginnings of a push-back.

Susan Crawford, a liberal judge from Dane county, won the race for a seat on the Wisconsin supreme court, in a race the Democrats had framed as a referendum on Musk and Trump’s popularity.

Musk and groups associated with him spent C.$80m to boost their candidate in what became the most expensive judicial contest in American history.

“Today Wisconsinites fended off an unprecedented attack on our democracy,” Crawford said in a speech at her victory night event in Madison. “Wisconsin stood up and said loudly that justice does not have a price. Our courts are not for sale.”

The best summary I have seen came from Paul Nowak, general secretary of the TUC: “Donald Trump has just made the strongest possible argument for the UK to positively reset its economic relationship with the EU, our largest market. In the face of punitive and arbitrary tariffs, the government must do everything it can to protect British jobs and industry.”

 

“When you think the night has seen your mind

That inside you’re twisted and unkind”

 

 

‘So, Trump has fired the starting gun on the much talked about trade wars.

No war is good, and this will be no different.

Stocks are selling off as is the dollar, gold, the obvious safe haven continues to rise.

Trump has set the US on course for a trade war with the majority of major countries, not to mention a few I’d never heard of.

There will be retaliation, but, in the longer term, countries will find new trade partners, new markets.

Trump has, once again, over estimated American power and influence. In recent years that has slowly been ebbing away, but the change was too small to notice. Now, it will become increasingly obvious.

Once the rot sets in, it is hard to turn it back. Not tomorrow, next week, or even next year will it become obvious, but in 5-yrs time it will be there for all to see.

In my view, and, as I have written before, this is the Fall of the Roman Empire II; America will be the ultimate loser.

What we are seeing is what I have written in recent weeks; countries do need to go to war with the US, they don’t need to fall-out with the US, they need to become independent of the US.

Lyrically, we start with the Clash and “Complete Control”, a song written when the bands label CBS released “Remote Control” without the band’s permission. To finish the hauntingly beautiful and equally dark “I’ll Be Your Mirror” by the Velvet Underground. Enjoy! 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

Click on the link to see all Brexit Bulletins: