There are many problems with trade wars. The unintended consequences are in some ways most alarming. Consequences never anticipated, never thought through, taking many by surprise when they happen.
Take Maine for example. Maine harvests more lobsters than any other US state, more than any Canadian province for that matter. The harvest last year was valued at $450 million dollars. The softer shell Maine lobsters sell for several dollars less than their Northern rivals. It is a price sensitive market.
China is a major market accounting for 25% of total output last year. It was a good year. Exports to China were $137 million, up from $52 million three years ago.
Not for much longer. Following the announcement of a 25% tariff on Chinese products, Beijing has retaliated with an additional 25% tariff on seafood from the US. Sales will be hit. Dealers are considering relocation north of the border. American jobs will be lost as a result of the Trump protectionist measures. This week GM warned of a "Smaller GM" if trade wars escalate. Harley Davidson, has announced plans to relocate some production out of the US to protect sales. There are many problems with trade wars, job losses included.
"There are many problems with trade wars ... job losses included"
Don't expect an easing of trade tensions anytime soon. Trump has now declared the EU, NATO and WTO as Enemies of the State. Tensions are rising in the White House. Lawrence Kudlow, Trump's chief economic advisor has broken with protocol. He expressed the hope, the Fed ‘will move very slowly’ on raising interest rates. The White House, as a rule, refrains from comments on monetary policy.
The Fed is unlikely to listen. Growth in the first quarter of the year was up by 2.8% year on year. Inflation is back to target at 2%. The Fed is set to hike rates at least twice if not three times this year. Growth will near 3% for the year as a whole. Borrowing is increasing as a result of Trump's spending spree. The deficit is set to rise to over $800 billion in the current year and $1 trillion in 2019. Tax cuts will add an additional $1 trillion dollars over the next ten years. Economic chaos will be the lasting legacy for the economics of Donald Trump ... not just in the USA but around the world ...
May Day, May Day, May Day ...
In the UK, Andy Haldane Chief Economist at the Bank of England explained why he voted for a rate rise in the June MPC meeting. It was because of the World Cup! Excellent. So much for a Sheffield BA in economics and a post grad from Warwick. Football is the new "Forward Guidance". Sterling rallied on the news. How Forex markets will soar if England win the world cup. Football may be coming home but your mortgage is set to rise. You may have to sell the new TV and barbecue to makes ends meet.
Andy Haldane : Football is the new Forward Guidance ...
Heads were meeting in Europe this week. The European leaders were meeting to discuss issues of migration and of course Brexit. After all night talks on migration, the EU heads of government spent less than 60 seconds to approve their joint approach on the UK's exit. "Less than a minute" to confirm the stance on Brexit negotiations". Done in 60 seconds. Donald Tusk warned time is running out. "This is the last call to lay the cards on the table". It doesn't bode well. So many cards ... so many packs ... so little time ...
On Friday the ONS revealed the latest estimate of growth in the first quarter. Output increased by 1.1% year on year. Construction was not as bad as first estimated. Manufacturing increased by 2.5%. Service sector growth increased by 1.2%. Leisure spending was up by less than 1%. Government spending was flat. Most analysts now expect growth of just 1.4% this year. The prospects for a rate rise remain finely balanced. Yes even if England win the World Cup. The odds are 8:1 for and England win, evens favorites for a rate rise in August or November ...
The Hit Man Cometh ... makes a move on Pharma
Amazon made a move on the pharmacy market this week The $1 billion dollar acquisition of on line start up PillPack had rivals reaching for the headache tablets.
Panic attacks ensued as almost $18 billion dollars was wiped off the valuations of eight companies within hours of the announcement. Retailers and distributors were hit. Walgreens Boots Alliance and Walmarts led the falls. Walmarts, the under bidder in the PillPack deal lost $3 billion in market cap.
Amazon also announced it would recruit "local entrepreneurs" to handle the "last mile" challenge. A move designed to take business away from established carriers, Fedex and UPS shares fell on the news. $3 billion again the deficit on the day. One word from Bezos and markets tremble, share prices tumble.
Back in the UK, Nissan joined the chorus of car manufacturers concerned about life post Brexit. The UK faces a shock to output in the manufacturing sector of some 10% of total output in the years ahead. It still hasn't recovered from the last recession. According to the latest data from the ONS, output in April was down by 3% compared with the peak in the first quarter of 2008. As a punch drunk fighter returning to the fray, Osborne's dream of the march of the makers rebuilding the workshop of the world, faces another knock out blow ...
That's all for this week, we will be back next week, with more economics ! Have a great weekend.
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for FREE weekly updates on the UK and World Economy.
The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.