I’m So Bored With the USA: “We’re Getting the Band Back Together” 

 

“And please remember people, that no matter who you are
And what you do to live, thrive and survive
There are still some things that make us all the same” 

 

“You are back on the scene, of the leadership in Europe”, said Eléonore Caroit, the vice-chair of the French national assembly’s foreign affairs committee, as PM Starmer took a leading role alongside other European leaders as sought to address how best to support Ukraine.  

 

But, are we really “back”?  

PM Starmer, in undertaking his self-declared mission to be a “bridge” between Europe and America, has made himself a player in ensuring a fair and secure peace deal for Ukraine. 

But whether this heralds anything more permanent, let alone if it could mark any softening of EU attitudes as Starmer embarks on the longer-term project of easing post-Brexit ties with Brussels, remains to be seen. 

Perhaps, due to domestic political considerations. Starmer has been very clear he has no plans to reverse Brexit, and the threat from Reform in many Labour seats will clearly impact any reintegration. 

Despite this, there are signs that the post-Brexit era where it was viewed as politically expedient to be at loggerheads with Europe is over. 

Clearly, Europe is likely to be Ukraine’s main ally. Trump said Zelenskyy “won’t be around very long” unless he succumbed to pressure and made a deal on US terms.  

Intentionally or not, the US has already undermined central pillars of PM Starmer’s approach – maintaining military support for Kyiv and economic pressure on Moscow, and creating a “coalition of the willing” to guarantee Ukrainian security. VP Vance derided “20,000 troops from some random country that has not fought a war in 30 or 40 years”, then claimed that he was not referring to Britain or France. 

 

“20,000 troops from some random country that has not fought a war in 30 or 40 years”

 

Trump is also reported to be drawing-up plans to restore ties with Russia, and both the state and treasury departments have been asked to draft a list of sanctions that could be eased for US officials to discuss with Russian representatives in the coming days as part of the administration’s broad talks with Moscow on improving diplomatic and economic relations. 

Those benefitting from a lifting of  sanctions are said to include select entities and individuals, including some Russian oligarchs. 

The Kremlin last year described relations as “below zero” under the administration of Joe Biden, a Democrat who backed Ukraine with aid and weapons and imposed tough sanctions on Russia to punish it for its invasion in 2022. 

The treasury secretary, Scott Bessent, last month told Bloomberg Television that Russia could win economic relief, depending on how it approached negotiations in the coming weeks. Trump told reporters last week that Russian sanctions could be eased “at some point”. 

Trump could issue an executive order that would allow the administration to begin the process of easing some Russian sanctions, but he would also need to seek congressional approval to lift measures on certain entities, said John Smith, a partner at Morrison Foerster law firm and the former head of the treasury department’s office of foreign assets control. 

The US, as they continue to impose their, and Russia will on Ukraine, have suspended delivery of all US military aid. The decision affects deliveries of ammunition, vehicles and other equipment, including shipments agreed to under President Biden.  

Trump has not approved any new aid under his own presidential authority since taking office and any new  aid package appears unlikely, at least in the near term. 

Brendan Boyle, a Democrat congressman in Pennsylvania and co-chair of the congressional EU caucus said the aid pause was ​“reckless, indefensible and a direct threat to our national security”​. 

 

​“reckless, indefensible and a direct threat to our national security”

 

This was done without consulting European leaders. 

Ukraine’s PM, Denys Shmyhal, said that Kyiv still had the means to supply its frontline forces but warned thousands of lives were at risk and vital US-provided air defence systems could be affected. 

“We will continue to work with the US through all available channels in a calm manner. We only have one plan – to win and to survive.” 

Moscow celebrated the decision, with the Kremlin spokesperson Dmitry Peskov saying the US had been “the main supplier of this war so far”. 

Concurrent with this, the European Commission’s president, Ursula von der Leyen, announced proposals to strengthen Europe’s defence industry and increase military capabilities by mobilising close to €800bn (£661bn), while the UK  is increasing defence spending from 2.3% of GDP to 2.5% by 2027, two years earlier than planned, worth an additional £6bn a year. 

Germany is stepping-up to the plate, and after years of sticking to tough rules on government debt, Germany’s chancellor-in-waiting, Friedrich Merz, announced that defence spending above 1% of GDP would be exempt from the country’s debt rule. 

Agreed with the centre-left Social Democrats, who are expected to form a coalition with Merz’s Christian Democratic Union (CDU), the plan also includes the creation of a €500bn fund to finance spending on Germany’s infrastructure over the next 10 years. Any lifting of the debt brake must command a two-thirds majority in the Bundestag. 

City analysts said sidelining the rule would be a gamechanger for the country’s economy amid big challenges from collapsing industrial output, weakened by slack demand and competition from Chinese electric vehicle manufacturers. 

“Germany was facing a potential growth trajectory heading towards zero over coming years. [The defence and infrastructure boost] catapults growth prospects closer to 1.5-2% for 2027 onwards,” analysts at Bank of America wrote in a note to clients. 

When considering aid data it is important to understand the actual economic cost rather than focus solely on an absolute number. 

For example,  US aid in absolute terms is C.$122.8bn which represents only 0.53% of 2021 GDP, whereas the UK has only sent $15.8bn but it represents 0.51% of 2021 GDP. 

It would seem that Ukraine are bowing to the pressure, as Trump in a speech to Congress revealed that “Earlier today, I received an important letter from President Zelenskyy of Ukraine,”. Quoting from the letter, Trump said Zelenskyy told him that “Ukraine is ready to come to the negotiating table as soon as possible to bring lasting peace closer. Nobody wants peace more than the Ukrainians.” 

 

“Ukraine is ready to come to the negotiating table as soon as possible to bring lasting peace closer. Nobody wants peace more than the Ukrainians.” 

 

Trump went on to say that he had been in “serious discussions with Russia” and claimed he had “received strong signals that they are ready for peace.” 

Other parts of the speech revealed, what I think is the true motive for Trump’s insistence of Ukraine making peace; his own colonial ambitions will require support from Russia. Essentially, Trump is seeking to carve-up the globe with countries sympathetic to US territorial ambitions. 

An example of this is Trump’s desire to take control of Greenland, currently controlled by Denmark, which he claims the US needs for “national security and even international security”. He added: “I think we’re going to get it – one way or the other, we’re going to get it. 

Trump went on saying that the US will be “reclaiming” the Panama canal, “and we’ve already started doing it”. 

This appears to be a reference to news that a China-headquartered company had sold two ports near the canal to BlackRock. Trump had claimed the ports could be used to exert Chinese control over the canal, and recounted that the canal was “built by Americans for Americans, not for others. But others could use it. 

“We didn’t give it to China; we gave it to Panama, and we’re taking it back.” 

Prior to his speech,  Trump had placed a tariff of 25% on all Mexican exports to the US. In addition, most Canadian exports will face a 25% tariff, with energy products facing a 10% duty.  

The Canadian PM, Justin Trudeau, called the US tariffs “unjustified” and vowing to immediately respond; “Our tariff will remain in place until the US trade action is withdrawn. Tariffs will disrupt a very successful trading relationship. They will violate the very trade agreement that was negotiated by President Trump in his last term.” 

Tariffs will affect $900bn in annual imports from Canada and Mexico. The Ford CEO, Jim Farley, has warned they threaten to “blow a hole” in US industry. 

Also, a 10% levy on China – introduced last month – will be doubled to 20%. In response, China’s commerce ministry promised countermeasures that it said were aimed at safeguarding its rights and interests.  

 

“Tariffs are easy, they’re fast, they’re efficient, and they bring fairness”

 

Trump, while reluctantly conceding that higher tariffs could lead to higher prices in the US, appears to believe that the impact would be worth the cost, and if anything, is likely to proceed further rather than backing-off, saying: “Tariffs are easy, they’re fast, they’re efficient, and they bring fairness”.  

He described them as a “a powerful weapon” that other presidents had not used because “they were dishonest, stupid or paid off in some other form”. Even Ronald Reagan didn’t escape as Trump said: “I’m a huge fan of Ronald Reagan but he was very bad on trade.” 

A somewhat more thoughtful summary was offered by Warren Buffett, who described tariffs as “an act of war, to some degree. “Over time, they are a tax on goods. “I mean, the Tooth Fairy doesn’t pay ’em!” 

Whist Trump promises a new “golden age”, some analysts are starting to warn of a “Trumpcession”. 

The tariffs look certain to trigger a trade war, especially with Canada, and there have been warnings of sharp price rises from US retailers on everything from avocados to cars. 

The on, off and on again tariffs saga shows instability, and there is still the potential of Tariffs against the EU.  

Alongside this, Elon Musk has been working to dismantle the federal bureaucracy. Layoffs aside, “DOGE” has had little impact,  but its ”move-fast-and-break-things” approach, including tearing-up contracts and pushing the boundaries of employment law, underlines a sense of chaos. 

Another concern is to what extent Trump will try to pressure the independent Federal Reserve to lower interest rates. This, plus questions about how the president will fund his jumbo tax cuts, has seen the S&P 500 fall from a high of C. 6144 in mid-Feb is now at 5800. 

In Trump’s favour is the fact that trade represents only 24% of US GDP (2023, Source: World Bank) which could limit the damage caused by tariffs compared to victims such as Mexico or Canada. By comparison, trade represent 64% of UK GDP.  

However, this doesn’t take into account companies become more cautious about investing, and consumers about spending, because of the prevailing climate of uncertainty. 

In the latest Institute for Supply Management report on manufacturing, for example, respondents repeatedly referred to the lack of clarity surrounding tariffs. One company said, “customers are pausing on new orders as a result of uncertainty regarding tariffs. There is no clear direction from the administration on how they will be implemented, so it’s harder to project how they will affect business.” 

Last month, US consumer confidence  recorded its sharpest monthly decline since August 2021, Source: Conference Board index. 

Lastly, there is the impact on the dollar.  

Typically, your currency gains when tariffs are imposed, which helps offset the rising cost of imports. And global volatility usually favours the safe-haven currency. 

However, this hasn’t been the case and the dollar has been falling, which has led some analysts to think the unthinkable: could the dollar US currency be losing its status as the world’s reserve currency? “The speed and scale of global shifts is so rapid that this needs to be acknowledged as a possibility,” said George Saravelos, global head of currency research at Deutsche Bank.

 

‘could the dollar US currency be losing its status as the world’s reserve currency?’

 

Overall, there is an air of chaos surrounding the Trump administration. 

Decades old global alliances are in tatters, America seems aligned with Putin’s Russia will equally unjustified and aggressive territorial ambitions. As such, is America becoming  a rogue state? 

The Kremlin now says that Washington “largely coincides with our vision”. 

Recession and stagflation are no longer hypotheticals,  trade wars are becoming a reality.  

Opening his speech to a joint session of Congress, he proclaimed that America was back, that the country’s golden age lay ahead, and that “momentum” had returned.  

His speech was at best divisive; Republicans thunderously applauded while Democrats delivered a chorus of catcalls. Early on, Speaker Mike Johnson demanded order, and the sergeant-at-arms removed Al Green, a Texas Democrat.  

Other Democrats walked out as Trump continued, with some of them wearing black shirts bearing the word “resist”. Others displayed panels that read “false” and “save Medicaid.”  

The speech was full of spurious and incorrect claims. 

 

‘a poll by Reuters / Ipsos this week, showed his approval ratings below 40% on issues such as the economy, foreign policy and corruption’

 

He claimed to have inherited “an economic catastrophe and an inflation nightmare” from the Biden administration. When Biden left office in January, inflation had fallen steeply from its peak in June 2022, and real GDP consistently exceeded expectations in 2023 and 2024. 

Trump also repeated Musk’s incorrect claims that millions of dead Americans continue to receive social security benefits, pointing to the fact that at least one alleged recipient appeared to be 150 years old. But that reflects a well-known flaw in the social security administration’s system which does not accurately track death records. A 2015 report found that only 13 people who had reached the age of 112 were receiving social security payments. 

This wasn’t a speech designed to unify a nation, it was akin to a Republican rally, aimed at feeding more raw meat to his MAGA supporters. 

But the gloss is already fading; a poll by Reuters / Ipsos this week, showed his approval ratings below 40% on issues such as the economy, foreign policy and corruption. 

The poll showed that 31% percent of Americans approve of Trump’s handling of the cost of living, a drop of points from 34% in a poll conducted from February 21 to 23. Overall, 54% disapprove of his handling. 

Unsurprisingly, along party lines, 87% of Democrats said that Trump had mishandled the issue of cost of living, compared to just 21% of Republican respondents. 

 

 

“Surrender to self-preservation
From others who care for themselves” 

 

‘Oh Joy!

People now know that Trump is running around naked. The emperor’s new clothes were a sham.

Tariffs are already causing economic concerns domestically, the S&P500 and dollar down. China and Canada have promised to retaliate, and Europe will also do so should tariffs be extended.

The band is back together; the UK is now operating as part of Europe, rather than as a spoilt-child determined to upset everyone.

Europe clearly understands that Russia was wrong to invade Ukraine, and is stepping-up support. Conversely, the US is getting into bed with Putin, and descending to the level of a rogue state. Their own territorial ambitions, such as Greenland, should see them crossed off everyone’s Christmas card list.

Isolation beckons. Making America Great Again will be replaced by “MAP”, Making America a Pariah.

Lyrically, as the band is getting back together, we start with The Blues Brothers “Everybody Needs Somebody to Love”. To endorse their forthcoming pariah status we finish with “Isolation” by Joy Division.

Enjoy the moment!

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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