G7 meeting will be a 'humdinger" ...
Leaders assemble this week-end for the G7 meeting in Biarritz. It promises to be a humdinger. Hopes are not high of securing much consensus. Macron has already given up all hopes of a joint communiqué at the end of what promises to be a tough week-end of talks.
President Trump arrives with a list of grievances. The self appointed "Special One" is facing economic humiliation at home. Trump economics is visibly failing, threatening the "second coming".
Internationally, the Prime Minister of Denmark refused to sell Greenland, suggesting the proposal was "absurd". The President considered the response to be brusque and nasty, cancelling the planned trip to Copenhagen in a typical Trump temper tantrum.
Making limited progress in the trade war with China, Trump warns "Europe is next on the list", just threaten to "tax the cars and they will give you anything" the claim. Yes, trade wars are easy and the U.S will win.
The G7 are at odds on so many issues. The readmission of Russia to the extended group, the nuclear treaty with and treatment of Iran, climate change, German spending plans, France's digital tax on Uncle Sam's finest and of course China.
Trump has asked for a special session on Sunday to discuss the world economy. It promises to be a master class on global macro economic management. "Want to run the most successful economy in the world like me ... slash taxes, boost spending, bring back coal and build a wall."
This week, Trump declared himself to be the "special one" chosen at the highest level to take on the Chinese threat to U.S. hegemony. The trade wars developed a further twist. Trump was unable to decide who was the greater enemy ... China or Jerome Powell chair of the Federal Reserve ...
Trump raises tariffs again ...
China has made it clear it will fight "to the end " as the trade war escalates. Announcing tariffs on a further $75 billion of U.S. imports, clearly directed at the U.S. farmland, Trump responded with a further hike to 30% on imports from the East.
The tit-for-tat escalation is putting pressure on the U.S. economy. The Fed has issued a clear warning, the trade war is a threat to growth.
White House advisors are seriously concerned about the disruption of the economic cycle and the dislocation of the run in to the election just over a year away. Trump talked of a further round of tax cuts. Later recanting, making it clear, tax cuts are off the table. To proffer greater stimulus would be to admit a slow-down was in place. An admission too far, for the President at this stage in the cycle.
Trump continues to demand more rate cuts from the Federal Reserve, 100 basis points would be best. The Fed failed to oblige. "As usual the Fed did NOTHING" tweeted the President, "My only question is, who is our biggest enemy, Jay Powell or Chairman Xi".
The trade wars are escalating and threatening to extend to a decoupling of the U.S. and China. "Our country has lost trillions of dollars with China over many years. They have stolen our Intellectual Property at a rate of hundreds of Billions of Dollars a year. They want to continue but I (the special one) won't let that happen."
"We don't need China, and frankly would be far better off without them" said Trump. "Our great companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies home and making your products in the U.S.A."
"Build that wall, bring them home, send them back. I hereby order the world to fall into line and will outline the route map at the G7 meeting in Biarritz". Yes it promises to be a humdinger.
Trump is floundering. His inability to make deals is apparent. Jobs are not returning to the U.S.A. They may be leaving China but are en route to Vietnam, Bangladesh and other beneficiaries of Trump economics. The U.S. is losing the trade war, American voters will pay the price. This week, the Congressional Budget Office warned of the $1 trillion dollar deficits and huge debt burden to be placed on generations ahead. The trade deficit will continue to increase.
The US Chamber of Commerce has made it clear, Tariffs have been bad for the economy. Negative consequences include higher prices for consumers and businesses at home with retaliation by foreign governments damaging the prospects for exports.
Voters are turning against tariffs. A recent poll, by NBC News and the Wall Street Journal found that "two thirds of Americans support the idea of free trade". Democrat and Republican majorities now express favorable views toward free trade. Trade wars are not so easy to win after all, the clear warning to the White House but will Trump heed the warning ...
Borrowing increases ...
Shock for the new Chancellor of the Exchequer, borrowing is up by 60% in the first four months of the financial year. In the current financial year to date, total borrowing was £16 billion compared to £10 billion last year.
Spending increased by 6.5 per cent as tax receipts fell on the back of weaker corporation tax revenues. If current trends are maintained total borrowing will increase to almost £38 billion compared to the OBR target of £29.3 billion.
The numbers suggest there will be little in the coffers to support a Brexit setback. A VAT cut to 15% could be on the agenda, together with a cut in Stamp Duty and a boost to the car market. Spending on infrastructure could be on the list, as Johnson plans to build HS2 from the North to South in a top to bottom review.
The Prime Minister was in Europe this week. Meetings will Merkel and Macron went well apparently. Something may well have been lost in translation. President Truman had a sign on his desk "The Buck Stops Here". Macron had a similar sign on his desk apparently, "The Back Stops Here" and it's here to stay ...
That's all for this week, have a great weekend. We will be back with more news and updates next week!
The Saturday Economist
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