On Nafta and free trade, let’s hope Trump’s bark is worse than his bite
For all the outrage Donald Trump generates as US president, he’s yet to do anything irredeemably stupid. There is, however, plenty of time left to mess up; one such upcoming test must be the attempted renegotiation of the North Atlantic Free Trade Agreement (Nafta), due to conclude in the first quarter of next year.
Trump’s insistence that free trade must mean fair trade is a reasonable enough aspiration; after more than two decades in operation, it’s also only right that Nafta should be revisited and modernised.
But to describe it, as Trump has, as “the worst trade deal ever” is quite a stretch, and if he goes through with his threat to withdraw, it doesn’t bode well for British hopes of securing a similarly beneficial trade deal.
As it stands, Nafta accounts for approximately a quarter of all world trade, with millions of jobs at stake. It’s been extremely good news for Mexico and Canada; its rewards for the US are more questionable. Lots of jobs have been lost to low-cost Mexican competition, and there are entirely legitimate concerns around some aspects of the deal with Canada.
Since it came into operation, moreover, the US’S trade deficit with both Mexico and Canada has ballooned. This does not mean, however, that the US has had no benefit whatsoever, as Trump seems to believe. US supply chains and businesses have become deeply vested in Nafta. Were it to collapse, the impact on Mexico would be much greater than on the US and Canada, but all three economies would experience higher costs and consumers a big rise in prices.
It therefore makes eminent sense for Trump to cut a deal, but frustrated by his failure to repeal Obamacare and the compromises he’s having to make around tax reform, he may think abandoning Nafta, and making Mexico pay for that wall through tariffs, an easy political win. For the moment, there’s a lot of goodwill towards Britain in the Trump administration.
But once trade negotiators get down to the nitty gritty, harder heads will prevail, and if the sort of stuff now being proposed for Nafta, such as five-year sunset clauses, is part of the deal, creating regular bouts of uncertainty over trade, you have to wonder what would truly be in it for us. We can only hope Trump proves more bark than bite.
Cashless Big Brother
Andy Haldane, chief economist at the Bank of England, revels in his reputation as an iconoclast, so he would have been more than happy with the storm of abuse he got a few years ago for daring to suggest that cash be scrapped in favour of an all digital currency.
Haldane saw a cashless economy as a way of imposing a negative interest rate, something which is plainly impossible with physical bank notes and coins. Yet as it turned out, the economy didn’t need the extra stimulus Haldane then thought it might. Even he voted with the majority last week in opting for the first interest rate increase in more than 10 years. Supporters of an all digital currency are nonetheless far from discouraged. Retailers just love the idea, because consumers tend to notice the damage to their pockets less when constantly putting it on the plastic or the phone. Likewise the tech giants, who see the data it provides on consumer spending habits as the new gold rush.
More disturbingly, so increasingly do governments, or at least the more authoritarian ones. In certain Chinese cities, it is no longer possible to use cash; large parts of the Chinese mainland are now almost 100pc digital. In part, that’s because mobile phones, much like cars in the West, have to be individually registered, making counter-party verification much easier.
This difference might explain why China’s tech giants – Alibaba and Tencent among them – have been keener to enter the transactional banking arena than their Western counterparts. In any case, the developing world has been faster on the uptake than more advanced economies, leapfrogging them in many instances into a fully digital world of money. Yet there is a more sinister motive too, for in China “Big Data” is also very much “Big Brother”. Criticise the regime and you may suddenly find your credit mysteriously curtailed. I’m not sure that’s what Haldane had in mind when he made the case for a cashless society.
Greedy IPO sponsors
It’s common enough for chief executives to blame the weather, elections and increasingly Brexit for their profit warnings, but to cite “market uncertainty” as the reason for pulling an IPO at a time when stock markets are booming, as two such offerings did last week, really does deserve some kind of medal for limp excuses.
This is like the clothes retailer who blames a poor summer season on too much sunshine. “We planned for cold, but we got hot. Unpredictable weather completely off-sided us.” Similarly with Arqiva, the UK’S largest owner of TV transmitters, and hummus producer Bakkavor, which after much hype and razzmatazz, have at the last moment chickened out of planned London stock market flotations. Those dastardly share prices just keep on going up. The uncertainty was just too much to take.
There has admittedly been quite a bit of volatility around the share prices of recent IPOS; few have traded well in the aftermarket. This is also one of the most bearish bull markets, so to speak, the City has ever known. More or less everyone suspects it’s about to break. Even so, it’s hard to think the twin failures have much to do with market uncertainty.
The more plausible explanation is that sponsors are simply proving too greedy. Arqiva is highly leveraged, and Bakkavor has a somewhat chequered history. Priced correctly and a well run company with a decent market position can still do well, as the retailer Foot Asylum – floated last week and now trading at an 18pc premium – all too plainly demonstrates.
Somewhat surprisingly, the other company that successfully managed to float in London last week was Oleg Deripaska’s EN+, albeit at the bottom end of the price range.
If nothing else, this proves that there is a price for everything; set it low enough and the investors will come, even for someone with as colourful a reputation as Deripaska.
‘If Trump goes through with his threat to withdraw, it doesn’t bode well for British hopes of securing a beneficial trade deal’
President Donald Trump’s fears over Nafta appear increasingly overblown