Nov 11th, 2024: A weekly rummage through the garbage cans of global economics and geopolitics

with Andrew Hilton (wearing gloves and wielding a long stick).

Is it worth saying anything about the US election? It is certainly hard to say anything new – but I do think the response of Democratic boosters in the press and politics is interesting. Basically, there have been two sets of excuses: Blame Biden (for stepping down so late, and for not giving Harris enough time to show her true worth); or Blame the Party (for having drifted away from its blue-collar roots, instead becoming the Party of college-educated liberals who have never changed an oil filter or flipped a burger in their lives, but who are keen to patronise those less affluent and less well-educated than themselves).There is obviously some truth in both critiques – but I see little or no mention of a third possibility: that Harris was a pretty dreadful candidate - arrogant, entitled, none too smart and painfully woke. (I didn’t see it myself, but I just love the Trump ad, the tagline of which was ‘Kamala is for ‘They/Them’, Trump is for ‘You’.’) She also (IMO) didn’t help her cause by surrounding herself with Hollywood stars, daytime TV personalities, sports personalities, rap stars and politicians – almost all of whom were Black. To the average (white) suburbanite, and to Hispanics, this started to look more like an ethnic coup and less like an affirmation of the Democrats’ long-time commitment to diversity. I do think it is important to accept that race still plays a role (in the UK as well, though perhaps less so), whatever liberals might wish. So, obviously, does gender – though the really interesting statistic is that Trump did so well amongst women despite Harris’s constant harping on abortion as a crucial issue. (By and large, it seems, most American voters – male and female – are fairly conformable now with this being settled at a state level.)

I could go on, but it is probably more fruitful to focus on what might happen next…

            First, remember that Biden is still President – until Inauguration Day on January 20. And the Democrats still control the Senate for one last, lame duck session. Given that the outgoing House is more moderate (and less MAGA) than the new one, there is a chance that Congress may try to box Trump in, at least on climate-related issues around Biden’s (mis-named) Inflation Reduction Act (a boondoggle for alternative energy buffs). More important – and, I am afraid, more depressing – is what that means in the foreign policy area. I note that Netanyahu was the first foreign leader to get through to Trump – and that they have now spoken at least three times. (Starmer should be so lucky.) I can well imagine the conversation: ‘Bibi, do what you have to do – but do it quickly, and get it done before January 20’. The ball is in Netanyahu’s court: will he prioritise taking out Iran’s nuclear facilities (in which case, we risk WW3)? Or will be prioritise formally incorporating the West Bank into Israel proper, and retuning settlers to what is left of Gaza? Or both? Bizarrely, Arab-Americans appear to have preferred Trump to Biden, and were crucial in Michigan; they are the first of many of his supporters likely to be let down. Remember that, after Musk, Trump’s biggest donor was Miriam Adelson.

            Second, bear in mind that, although most of his legal problems will now ‘go away’ (at least, temporarily, or until 2028, by which time he will be 82, and unlikely to get anything worse than probation), Trump holds a grudge – and he has lots of reasons to hold that grudge since his opponents in Congress, in the press, in the judiciary and (sadly) in the broader international community made it clear that they wanted him broke, beaten and in an orange jumpsuit. And that they were prepared to bend the rules if necessary. Just as that was unprecedented in US history, I fear Trump’s revenge will be unprecedented. The good news (maybe) is that his obsession with revenge might mean he has to delegate more day-to-day authority to Vance – who is clearly much smarter than he is (though I am a bit worried about Peter Thiel’s influence, and that of the so-called neo-reactionaries around him). Vance has already sketched the outline of a deal to settle the Ukraine crisis, which is at least plausible; I hope that was done with Trump’s knowledge and approval. As for Jack Smith, Letitia James, Alvin Bragg and even Judges Merchan and Engoron, they are going to have a very uncomfortable few months – though (unlike some) I am confident that the Supreme Court will hold the line.

            Third, what really matters are the key Cabinet members and agency heads that he appoints – particularly since a compliant Congress won’t even try to second-guess him. It has been pointed out repeatedly that, in Trump1, his senior appointees often acted to hold him back; apparently, that won’t happen this time – though I wouldn’t be so sure given that his first appointment was the eminently sane Susie Wiles as chief-of-staff. As she herself has said, she seldom has the first word, but often has the last word – and that includes on appointments. (Note that Wiles is the daughter of an NFL legend – a bit like Tom Finney’s daughter emerging as a political force under Kemi Badenoch.) That said, Trump’s second senior appointment was to bring back Tom Homan to be his ‘border czar’, overseeing the round-up and deportation of up to 20 million illegal aliens. Well, maybe… He’s tough. But even Homan has stressed that initially at least, he’ll just go for the ‘worst of the worst’ – and, whatever you read in the Guardian, there are lots of them. The ones who do (my) garden and fix (my) roof are way, way down the list. But there will be good photo-ops, and there really will be a ‘wall’ this time (though whether it will work is a different matter).

            Other than that, the key slots are still up for grabs – with Wiles and Cantor Fitzgerald’s Howard Lutnick (who has Cabinet ambitions of his own) sifting through the CVs. I note that Trump has apparently ruled out Nicki Haley (hooray) and Mike Pompeo, who had aspirations to be a super-hawk Secretary of Defense. I find that encouraging – as I (think I) do about rumours that (ex-Democrat) Tulsi Gabbard, who has been deeply critical of pointless military entanglements, is up for a senior slot. Given that Trump’s own views are largely unknown, it is hard to make informed judgements about who gets what – though I would be very (albeit pleasantly) surprised if Jamie Dimon, who sat on the fence during the campaign but who is now letting it be known he would like a crack at Treasury, got the nod. More likely would be either Scott Bessent or John Paulson – two hedgies, one gay and the other half-Ecuadorian. The world could live with either; what would be a lot scarier would be if Fox’s Larry Kudlow got the gig (though someone who knows him did suggest he would do a good job as Budget Director).

            Treasury is clearly an important slot – but, at least initially, perhaps not as important as Attorney-general, particularly if Trump really does go after his ‘enemies’. Last week, a couple of Senators were being mentioned. But now the finger is being pointed at an ‘aggressive’ former Federal prosecutor (and, briefly, acting A-G in Trump1), Matthew Whitaker, who would be much more pliable. We’ll see. Ex-SEC Chairman Jay Clayton is also in the running, and may be more palatable (though, as I say, a Republican Senate would approve a horse). As for State, the only name that seems to crop up on every list is Ric Grenell, a former Ambassador to Germany (who also happens to be gay), but that may be because he is a PR flack by profession. Marco Rubio would make more sense. As for Defense, Sen Tom Cotton, who is hot for the military, apparently wants the job. He may get it.

At least as important as the Cabinet slots are the key regulatory agencies – where everyone is expecting a sweep-out. The key ones are the SEC, where Gary Gensler will go ‘on Day 1’, and the FTC, where Lina Khan (who I had forgotten was ‘British-born’) will almost certainly follow him. I am split on this. I am one of those who feel that the best thing that happened to American industry in the last sixty years was the break-up of AT&T, and that we need more – and more aggressive – use of anti-trust legislation to reinvigorate global capitalism. I surmise that part of Trump agrees – but not the part that funded his campaign. As for the Fed, the Chairman does not serve at the pleasure of the President, and Powell (who was a Trump appointee) has already said he would refuse to resign if asked. My guess is that he will stay for the rest of his term (after all, he gave Trump a quarter-point cut in interest rates last week, when caution might have suggested no change), though Kevin Hasssett and Kevin Warsh are both lobbying for the job.

Whatever… Come the end of January, what do we have to look forward to? While an immigration round-up will get the headlines (if it happens), a 10% across-the-board import tariff would be much more significant in terms of the economy – again, if it happens. Clearly, there are many in Team Trump who really believe in socking it to the rest of the world, but I am assured that Robert Lighthizer (who may well emerge as USTR, or even Secretary of Commerce) is not as stupid as he sounds, and that what he is really angling for is ‘reshoring’ by American corporations and a pledge by foreign governments to open up their markets – faster and more completely. There will be a carrot, as well as a stick.

And then, of course, there are the two wild-cards - Elon Musk, who has been promised a new role as Director of an Office of Government Efficiency (a role that would not require Senate approval), with a mandate to trim $2 trillion from the $7.8 trillion Federal budget, and RFK Jr, who apparently believes he will have some sort of supervisory role over the various health agencies.

I think Musk’s appointment is really, really interesting – though I honestly can’t see him sticking with it very long. He may be the ‘super-genius’ Trump says he is, but going through the budgets of hundreds of Federal agencies is a good deal less glamorous than heading for the stars, and I fear his attention may wander. (Maybe he’ll hire Dominic Cummings just in case.) As for Kennedy, my guess is that he will turn out to be too controversial even for Trump. I know he is not the simple-minded anti-vaxxer he is painted as being, but Big Pharma really hates him, and the pharmaceutical companies are also campaign contributors.

            One area where we can expect change is climate policy. As we all know COP29 opens today in Baku – against a background of accusations that the Azeris are just interested in using the Conference to do  oil and gas deals (much as happened last year at COP28). Maybe. Certainly, the cynics are out in force, and there is a rapidly growing consensus that Paris targets are already out of range. After all, the US is now producing oil and gas at record levels, Brazil is aiming to double or triple production, and even Norway is issuing new North Sea drilling permits. There is little doubt that Trump will pull the US out of the Paris Agreement – and very little chance that he will live up to any pledges the US team (led, incidentally, John Podesta, hardly a household name) makes to boost transitional finance flows to poorer countries – which is what this COP is supposed to be all about. Whatever one’s position on climate change is, Baku looks like a very sad meeting – more a wake than a celebration.

(I suppose one shouldn’t be too cynical about Baku. But it is hard to avoid a degree of scepticism. After all, the official UN position is that we need to cut GHG emissions by 9% a year if we are to hit the target of limiting the rise in temperature to 1.5*C above pre-industrial levels. Last year, global GHG emissions actually rose 1.3%, and – just to emphasise the hypocrisy of the left – the Biden Administration, for all its bleating about its Green credentials, has actually issued 20% more oil and gas licenses than Trump ever did. It is not that I don’t believe in global warming; it is just that our current approach simply isn’t working; we must either adapt out economy to a warmer world, or think much more seriously about geo-engineering.)

Enough, at least for the moment. I surmise there will be a lot to say about a second Trump Administration between now and January 20 – and masses more thereafter.

As for the UK, I guess I was bit surprised by Kemi Badenoch’s decisive victory over Robert Jenrick as leader of the tiny Tory rump (particularly given the make-up of the Tory Party membership), but I am not sure one can say much about it until the shadow Cabinet has bedded in. I suppose Mel Stride was no surprise as shadow Chancellor, nor Priti Patel as shadow Foreign Secretary. But just how effective either will be is hard to say. I have a feeling that Jeremy Clarkson may be more important in getting the IHT regime changed, and that those (like me) who felt the budget was fundamentally anti-capitalist and anti-private enterprise will have to rely on extra-Parliamentary pressure to make our point. We’ll see.

Meanwhile,  I see Germany moving inexorably towards a vote of confidence in the Bundestag, probably before Che4istmas, that Scholz cannot win, and that will lead, equally inexorably, to a general election that will see the CDU/CSU’s Friedrich Merz emerging as the new Chancellor, probably with the FDP as his coalition ally. (He already appears to have promised the FDP leadr, Christian Lindner, the Economics portfolio.) Whatever, that would be a good thing – an opportunity for a comprehensive rethink of economic priorities and a chance to marginalise the Greens. And the sooner it happens the better.

What about the global economy?

Well, arguably the most import economic release last week was the final S&P PMIs for October. They were a mixed bunch.  The US still looks pretty good, with its composite PMI improving from an already strong 54.0 to 54.1. The Eurozone also moved back to 50.0 (on the borderline of real growth), from 49.6 – though both Germany and France had composite readiness well below 50, in the case of Germany 48.6, and in the case of France, just 48.1. That is bad news – and goes a long way to explain the problems both Macron and Scholz are facing. In contrast, the UK’s composite reading was 51.8 – though that was down from 52.6.

As for China, its PMI picked up a bit last month, with the composite reading improving from 50.3 to 51.9 – though that clearly hasn’t had much impact on the ground, with the CCP’s standing committee announcing (at last week’s National People’s Congress) another stimulus package, this one of $1.4 billion. Initial reaction to that was a bit disappointing – but the aim is clear. It is to give local governments the headroom to take the RMB14 trillion that is estimated to lie in so--called ‘hidden’ debts on to their own balance sheets – and ultimately on to the central government’s balance sheet. It is also to free up resources at those banks and finance companies to get the Chinese growth machine moving again, preferably without inducing another housing bubble. It may work, but the signs aren’t great – though the Chinese stock market did get a lift, which is unlikely to persist.

What else? Well, the Irish Taoiseach, Simon Harris, is set to dissolve the Dail this week, and to call new elections. That matters, I guess, since Sinn Fein is the potential beneficiary, but I must say it doesn’t seem to have elicited much concern in London. Maybe it should.

I know I have short-changed readers on the global economy this week; there is an awful lot more to say – not least about central bank policy (I was wrong in thinking that the FOMC and the BofE’s MPC would both decide now is not the time to goose up the markets with another rate cut, which only goes to show how little I know – or how political even apolitical central bankers really are). And there is tons one could say about the kick that equity markets got after the US election – and/or about the fact that, while official interest rates are headed lower, governments are finding it increasingly expensive to fund their ever-rising indebtedness. It just seems that there is so much more to cover on the geopolitical front (I have barely scratched the surface on the Middle East, let alone Ukraine or Taiwan or what is happening in Sudan).

But I should bring to your attention a new book in the geopolitical area, called Wreckonomics, reviewed in yesterday’s NYT, by two British-based academics, Ruben Andersson (Oxford) and David Keen (LSE). Its main theme is apparently to answer the key question (one I ask myself): ‘When did liberals become so comfortable with war?’ And why did they decide that geopolitical ‘realists’ (like me) are in fact guilty of ‘apologism, misinformation and not caring about democracy’? I haven’t got the book yet, but it sounds like my kind of bedtime reading.

Many thanks,

Andrew Hilton