So, now we know. Mr Johnson’s electoral success puts paid to over 3 years of political logjam and the UK’s withdrawal from the EU can truly begin. Well, that’s the theory although one suspects sorting a trade deal will not be plain sailing. Anyway, we can perhaps now concentrate a little more upon economic matters rather than those of the political variety.
And what are the weighty economic matters of the day? Recent data shows a sharp decline in Chinese exports to the US while for the 4th consecutive month, overall Chinese exports also fell. Markets clearly want a resolution to Sino-US trade tension but Mr Trump likes playing to the gallery. He regularly lets slip that a trade deal could be close but then dashes hopes. This is all designed to put pressure on the Chinese who export three times the value of goods to the US than vice versa. Trump realises simple mathematics ensure tit for tat tariff reprisals will hurt China far more than the US but his real aim is to reset the rules of the game, permanently. He also has France in his sights after Mr Macron announced plans to introduce a digital services tax (principally affecting US tech giants) and the likes of Argentina and Brazil, where currency weakness is damaging US agricultural companies’ competitiveness.
The problem with fighting everyone is that Trump risks embedding global protectionism. His Chinese stance makes sense due to Beijing’s theft of intellectual property and unfair trading practices but the rationale of tariffing Argentina because its currency has evaporated leaves much to be desired. This behaviour would be problematic under normal circumstances but with world economic growth stumbling, unconventional monetary policies everywhere and an economic expansion that is very advanced, it risks turning a drama into a crisis. Our investment policy remains defensive.