Brave new world for trade

WE have come to think of Paul Krugman as the angry columnist ranting against the evils of Donald Trump.

At a packed seminar at the International Monetary Fund, the audience saw a different Krugman in the shape of the Nobel-Prize winning economist opining on his home ground of trade.

At a moment when the North America Free Trade Agreement (NAFTA) is under fire from Trump, the Transatlantic Trade & Investment Partnership (TTIP) is dead and Brexit casts a pall over the European Union, there was some surprising wisdom from Krugman. Trade has been a huge driver of growth, particularly for emerging market economies such as China, but has been more subdued since the financial crisis. Indeed, it is possible the world may be close to ‘peak’ trade in goods.

This is due to the changing nature of production. Robotics, Artificial Intelligence and 3D printing, together with the acceleration of wages in China, are changing the economics of making things.

Germany is pioneering 3D manufacturing of footwear at home rather than buying in shoes from the Far East. The ability to reshore production jobs is reason to be opti- mistic about a depreciated pound and Brexit. The economist (no friend of the Brexiteers) recounts how UK manufacturers are already reshaping their supply chains to meet post-referendum challenges.

The pioneers behind Nim’s Fruit Crisps are resourcing beetroots in Yorkshire after the cost of imported ingredients climbed. Before the referendum only 20pc of ingredients came from home, now it is 70pc.

Motor industry body the Automotive Council reports domestically-produced components climbed from 41pc to 44pc over the last year. UK-based aluminium smelter Liberty House is investing in an automated plant in Coventry to provide pressings for car makers, Nissan and Jaguar Land Rover. There is a school of thought that says devalu- ation is no help to the UK economy any longer because of complex supply chains.

Reality is that modern technology makes it easier to rebuild those supply chains at home, eliminating inward transport costs and providing for the import substitution which would make devaluation work.

The imperative is for high-tech investment in manufacturing which will improve productivity. That is why it is so important the Tories end squabbling and businesses follow the lead of car component manufacturers and embrace a lower- cost, more automated future.

Hammond’s headroom

ONE of Philip Hammond’s great mantras is that he didn’t come into politics to raise taxes. Now he might not have to. Public sector finances for the first half of the year have proved much more resilient than expected, supported by strong income tax and VAT receipts, constrained central government spending and lower local government borrowing.

If this momentum could be maintained through the rest of the year, overall public borrowing would come in at £42.4bn against the £58.3bn forecast by the Office for Budget Responsibility. This is just as well as the Chancellor could be as much as £8bn out of pocket after the plans to raise tax on the self- employed were dropped and extra funding was promised to Northern Ireland.

There have also been pledges to ease student fees and bolster spending on social housing. In addition, the Chancellor has to cope with the OBR’s productivity forecasts which could eat heavily into the £26bn headroom he had planned over the next five years. There are hints from Hammond that there may be offsetting factors, which will provide more room to manoeuvre.

It may be worth noting that the Coalition inherited a projected deficit of £175bn in 2009-10. The likely outcome this year will be about a quarter of that. Not quite job done but austerity has worked.

Empire building

WILL anyone ever move to curb the power of the Silicon Valley internet giants?

The last week has seen Amazon tighten its hold on logistics by acquiring ‘package’ rooms in residential buildings, accounting for 850,000 apartments. Facebook has signed deals with ten major publishers including the Washington Post, the Economist and Bild in Germany. It will offer users ten free articles a month before being prompted to buy a subscription.

Needless to say Mark Zuckerberg will be taking his cut.

Better than more fake news.