March 2017

Since my thoughts at the beginning of February, which followed a few intensive days in Washington DC, nothing has happened to change my view of Trump. He is, however, proving, as predicted, to be unable to distinguish between the trivial and the important. His fight with the Supreme Court has not gone away. His attacks on the press have not reduced and his defeat in Congress on the rushed and rather ill-thought-out reforms to Obamacare increase the chances of a government becoming paralysed by trench warfare between the President and Capitol Hill. If Trump can resist getting into more skirmishes and actually focus on tax reform, coupled with even a small amount of infrastructure expenditure, then the prospects are very good for the US economy – but it is a big ‘if’!

The economic improvements that are gradually taking place in spite of everything, both in the US and in Europe, are encouraging. Subdued “animal spirits” are building and the pick-up in trade is steady. Even the sales of infrastructure machinery, such as Caterpillar, are picking up along with the train freight loading, all signs of the famous ‘green shoots’. While there is some unpredictability, a late Spring frost, such as a bigger than predicted uptick in inflation, or political upsets in the European election round, the chances are we are in a period of low but steady economic improvement.

In the short term, the triggering of Article 50 is likely to reduce the coverage given to
politicians, bureaucrats and pundits in general. The lack of real news in the disengagement process has created far too much coverage from political posturing by bureaucrats and pundits of one kind or another, most of whom are not and will not be involved in the
negotiations, this should cease when the machinery cranks into action. There will certainly have to be some complicated discussion as to how negotiations are really going to take place – who sits opposite who, and the shape of the table will be the initial problem! Things that should have been sorted out long before now but which Juncker and Barnier, at least publicly, have refused to discuss. Both of them have exhibited completely inconsistent positions; on the one hand we won’t talk about talks until they start, and comments like “no cherry picking” but on the other hand “we want an early deal on Britain’s exit bill before the rest of the negotiations”. This means that the chances of a deal being worked out in two years is slim. The second hurdle to the whole process is “the deal” will have to be put to the 27 States to agree. Again, a highly unlikely possibility, bearing in mind it took seven years to negotiate a very simple trade agreement with Canada.

At this stage, Mrs May’s stance that, no deal is better than a bad deal, is the only position she sensibly can take. After a lot of smoke and fury and political posturing by Brussels, as it tries to square the many circles of its relationship with the 27 members, commercial reality will inevitably cut through the smoke and confusion. European industry and financial institutions will start to lean seriously on their respective governments to produce what will have to be called an interim agreement, this will avoid the necessity of coming to a final agreement that would have to be put to the member states.

The greatest danger to the British and European economy will be from a breakdown at the ports and airports, where the bureaucracy of the customs organisations could glue up the whole system. It is the bureaucracy that is to be feared most, government organisations that live in a world of their own, implementing the tens of thousands of “rules” invented by politicians to satisfy the many single interest groups that make up the political landscape.

Fear of the unknown is the primary argument of the Remain lobby and, unfortunately, there is an incentive for the Remainers to derail the system if they can, to prove their own case. The future is always unknown and there is always a tendency to create rules and regulations in the hope that the blanket of bureaucracy that goes with them can protect one against an uncertain future. In a world where change is the only constant, the security blanket of ever more bureaucratic institutions (Brussels?) gives a false and temporary sense of security, which prevents the flexing of the economic world to adjust to continuous change; leading to the kind of political upheaval that we are seeing in Europe; Brexit being just one symptom. Britain is lucky to have a Prime Minister who is competent, clear headed and hardworking, and who shows no sign of her predecessor’s urge to be constantly twittering and looking for
popularity. So far she has steered a steady course in spite of every attempt by her colleagues in the institutions of government to derail and confuse an already over-complex process.

One of the most interesting elephants in the room at the moment is the quiet revolution going on in Asia, led by China. This autumn we will see laid out President Xi’s vision for the next five years. Probably the only country with a seriously competent leader who has experienced all walks of life and who has the determination and the vision, backed by a competent and well educated cabinet, to bring prosperity to their country. Leaving aside the longer term philosophical arguments about systems of government, it is a relief to see the one major country that is intent on improving the lot of its people and bringing stability to its region of the world. But this is a subject for another time.

When the dust settles several years out, the noise and fury of the current moment will be forgotten and the probability is that things will be better generally than they are today.

Damon de Laszlo
28th March 2017