The slowing global economy will eclipse Brexit

When Trump’s tariffs bite, a simmering trade war threatens to boil over into a fully fledged downturn

Meetings of the Group of Twenty major economies (G20) are, on the whole, vacuous affairs that rarely achieve anything of significance. Beyond the opportunity for high-end international travel and junketing by world leaders and their extensive entourages, it is indeed hard to see the point of them.

Jet-lagged, hung-over, or both, the grand mufti of supposed cooperative global governance stumble blindly towards some kind of pre-agreed communiqué of such inconsequential, lowest common denominator emptiness as to be barely worth the paper it is written on.

That, it seems, will be the fate of next week’s G20 summit in Buenos Aires. Leaks of the draft communiqué suggest the outcome will be even less memorable than usual.

It is customary in these documents at least to pay lip service to the idea that protectionism is a thoroughly bad thing, even though many of the signatories practise it with impunity. Yet this time around, it has been dropped from the draft text, presumably at the insistence of US officials keen to avoid the barracking that Donald Trump received from other world leaders last time around.

What the G20 should be doing is addressing the now evident storm clouds closing in on the global economy, and perhaps even agreeing a coordinated response to them.

Fat chance of that, given the standoff on trade.

There were hopes that the summit would provide an opportunity for Presidents Trump and Xi to bury the hatchet, yet there is little evidence of any such rapprochement. To the contrary, the rhetoric hardens by the day. In an interview this week, Kevin Hassett, chairman of the US president’s Council of Economic Advisers, suggested that China should be evicted altogether from the World Trade Organisation, which he said had failed US interests.

So far, Trump’s trade war has had only a very limited impact on the world economy. It’s been more noise than substance. But the main US tariffs don’t kick in until January, and there is no sign of Mr Trump climbing down from his threat to eventually impose higher import charges on all Chinese goods.

If he persists then these simmering trade tensions will eventually boil over into a fully fledged downturn. Almost everywhere outside the United States, the economy is slowing, from China to Europe and the UK, and even in the US there are early signs of the Trump boom running out of steam.

The canary in the coal mine is the tech sell-off of the past several weeks. Every market peak has its symbolic moment. Back in the days of the dot-com bubble, it was for Britain the flotation of lastminute.com. Amid the speculative mania of the time, the stock virtually doubled on the first day of trading. Needless to say, it never saw that price again.

This time around, the defining moment was perhaps when first Apple, and shortly afterwards Amazon, became the first two companies in history to achieve a $1 trillion valuation. It’s been downhill ever since. The first rule of stock markets is that they are not the economy. Yet they have a nasty habit of being harbingers of wider troubles to come.

There are in any case plenty of reasons to question the main motors of today’s bull market – the ever onwards and upwards march of Facebook, Apple, Amazon, Netflix and Google, the so-called FAANGS. Pursued by an increasingly loud and angry posse of regulators and legislators, their licence to print money is under growing threat.

As the Trump stimulus fades, so does central bank appetite for the long-desired unwinding of monetary support and “normalisation” of interest-rate policy. Like the Grand Old Duke of York, having marched expectations up to the top of the hill, central bank governors are now, in the face of a slowing economy, furiously marching them back down again.

We are not yet ready, it seems, for withdrawal of the policy support put in place at the time of the financial crisis. Yet in backing off anew, policymakers only further delay the eventual reckoning. The bubble in asset prices and debt all that money-printing has created hangs ever-more threateningly over the wider world economy. Stock prices find their support in unprecedented, debt-fuelled buy-back activity that has seen corporate lending in the US alone swell to an eye-popping $6.3 trillion, a big chunk of it essentially junk and only manageable in an ultra-low interest rate environment.

Into this mix galumphs the political chaos of the European Union, now again fighting crisis on multiple fronts, from Brexit to Italy and the growing authoritarianism of Eastern Europe.

Even the mildest of recessions is all that is needed to tip the region back into financial crisis, such has been its failure since the last one to address the underlying fault lines in monetary union. That recession could all too easily be triggered by an acrimonious, no-deal Brexit.

The G20 has indeed got plenty to worry about. But will they take note? Don’t bet on it.