On Nafta and free trade, let’s hope Trump’s bark is worse than his bite

The Sunday Telegraph - Money & Business - - Business - JEREMY WARNER

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

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