It is that time of the year when those who receive ‘Commentary’ are provided with a short respite while the scribe takes his annual week-long vacation in Portugal. In the meantime, thank you to those of you who occasionally respond and who present me with additional food for thought to ponder allow me to say that these are very much appreciated. Although now written in a very different format, these originally being published as a personal newsletter a couple of times a week that aimed to provide views on European based issues from here in London and sent to my then Prudential Bache colleagues in New York, I can hardly believe that September will mark the 25th anniversary of the first of these. Not sure that I’ll make another twenty five years of writing them but I’ll certainly give it a try!
In a year in which there is much else to celebrate and commemorate as well, RAF100 for instance and on November 11th, this day marking one hundred years having passed since the signing of the Armistice, we find ourselves today being forced to observe raised levels of geo-political turbulence and tension. I see no end to this particularly in respect of an increasingly more powerful and resurgent Russia and whose challenge and continual testing of western resolve appears to know no bounds.
Separately, whilst I can fully understand why the bar has been raised, I deeply regret the manner in which the US President, Donald Trump has imposed or threatened the imposition of trade tariffs on China and countries elsewhere and can hardly be surprised at the Chinese response. The Trump policy and actions to date appear to me to have been ill-thought out and that they have been imposed in a manner that is totally inappropriate and disproportionate to a society that was brought up to believe that, unless in response to a direct and unprovoked attack, diplomacy should first be exhausted. Notwithstanding the scale of the US goods trade deficit with China, It seems to me that diplomacy has failed before it has even been given a chance.
In respect of Russia’s attack on Britain at the United Nations Security Council meeting last night, I see that former Foreign Secretary, Malcolm Rifkind used the well-worn term to describe this as being “a classic Russian attempt to obfuscate”. So it is and in the unprecedented manner that the UK has shared highly classified information and evidence with the 29 countries that have supported the UK stance on Russia should not be lost. I note too that Hamish De Bretton Gordon who I know well and who was previously Commanding Officer of the UK’s CBRN regiment and of NATO’s Rapid Reaction CBRN Battalion said on BBC Radio 5 Live that having seen some of the intelligence relating to the Salisbury attack he was 100% sure that Russia was responsible adding that as Novichok, the substance alleged to have been used in the attack of the Skripals was “military grade” and thus requires a “sophisticated laboratory, a lot of money, resources and expertise to produce, he thought that the agent was probably produced at Shikhany, a military facility in central Russia.
Next week we will hear more from Hague based Organisation for the Prohibition of Chemical Weapons (OPCW) which the UK Government had called in to provide an independent assessment of the evidence collected. I am personally quite sure that what investigation that the UK authorities including those at Porton Down will stand up to any scrutiny that they may be subjected to. Russia can prevaricate and use all the anti-British rhetoric that it likes but on this one the UK government along with the other 28 NATO member states are resolute in their belief that Russia was behind this tragic incident.
Trump and Trade Tariffs
No surprise that tit for tat trade tariff moves instigated by the US and followed by China have irked markets this week. This is not how trade is supposed to work and the potential damage done not only to US/China trade but also to the rest of the world trade is already immeasurably high.
Bad enough that the US has imposed $50 billion of tariffs on Chinese imports to which the response from China has been a direct threat to impose tariffs on 106 key US products including potentially some Boeing airplanes, President Trump is now threatening to impose another $100 billion of tariffs on Chinese goods coming into America.
Quite apart from lacking diplomatic effort and the damage already done, two things worry me in particular. Firstly it is that China is thought to hold approximately $1.17 trillion of US debt, a figure that represents 19% of the estimated $6.26 trillion of Treasury Bills, notes and bonds held by foreign countries. FYI, Japan holds around $1.07 trillion of US debt, a figure that translates to 18% of foreign held debt. If, as they could well do, China chose to dump US debt or indeed, if they turned the tap off continuing to purchase US debt, the US economy could be seriously hit.
The other factor based partly on the above and partly on the probability that the US no longer has the immediate capability to produce all the goods that it currently buys from China, is inflation. If proved to be correct then the threat of that alone combined with the probability that the FED would be forced to tighten monetary policy could leave the US economy in pretty poor shape.
Right now Donald Trump seems to have taken comfort from the fact that US jobless numbers are at seemingly record lows. Yes, he promised to put America first and he made no commitment that in doing so others would suffer. But in this surreal world in which trade policy is drawn and acted out on the hoof, my fear is that not only will America and indeed, China pay a hefty price for ill-thought out moves but also that the fall-out on the rest of us, both in and outside the EU and that includes Japan and other Far East countries could be enormous.
Just as the UK, NATO and Russia will at some point need to use the powers of diplomacy, diplomatic and political effort to move forward then so too will the US need to use diplomacy in order to find a new way forward for the future of international trade.
(Commentary will return on April 16th)
CHW (London – 6th April 2018)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785