Sincerely hope Labour stay firm and do not allow the NHS to become a bargaining chip that gets tossed Trump's way. It would be the end of the NHS, and Labour.
This is a good outline, but I think it would benefit from two additions, on intermediate inputs (very briefly mentioned at the end) and on linkage with other policy areas.
To take the last one first, Vance has said the US could withhold support from NATO if the EU (continues to) regulate X (Twitter). It’s very conceivable that security assistance will be linked to trade policy in a similar way, further raising the stakes of an option 2-approach.
As for intermediate inputs, remember the Mini’s steering assembly crossing the Channel a dozen or so times during production? Lots of businesses don’t sell finished consumer products, but rather parts and widgets which are then used by US manufacturers. Those supply chains will become far more uncertain, not to mention costly, when those US manufacturers have to factor in some suppliers securing waivers or pay prices inflated by tariffs. Let alone if the supply chain includes China as well as other nations.
Say a UK company buys inputs in China, adds value in UK (or elsewhere) and then sells on to a US manufacturer, will the China-tariff apply? What if some of the links in the chain enjoy waivers but others don’t? This is a recipe for total chaos, manifest corruption and endless litigation.
> Say a UK company buys inputs in China, adds value in UK (or elsewhere) and then sells on to a US manufacturer, will the China-tariff apply?
This would depend on the non-preferential rules of origin - a kind of formula used to calculate how "British" a good that's "made in britain" is.
So if the UK makes a car, but buys the tires and mirrors from China, then the Chinese tariff would probably not apply (because the value addition in China was low).
Ditto if the UK buys cotton from China (hypothetically) and then turns it into a t-shirt for export to the US (because t-shirts are substantively a different thing than cotton, a transformation has occured).
However if the value of the work done in China on the UK good begins to creep up, as a percentage of the goods total value, then yes the US may treat the good as being sufficiently Chinese to earn the extra tariff.
Both Vance and Trump seem to take a very transactional approach. They also both seem convinced that they have all the cards and it's their way or the highway. On the whole, that is correct but there are some American products they want us to keep buying and some they would like us to take. As said just the article, European governments cannot tell businesses who to buy from but there are lucrative government contracts they would like to win (arms and NHS supplies)
And that's the worrying bit; further NHS privitization for favourable tariff conditions. Unfortunately I wouldn't put it past Starmer, Reeves, and Streeting in signing off on the continued erosion of that institution.
What about the sale of US arms? Is that an American industry that would be hit if Trump pulls out of NATO and we all stop buying arms from the US? Does that give us a bargaining chip?
Difficult to replace some of the systems I think (in my completely non expert opinion). We are solidly committed, rightly or wrongly, to the F-35 for instance.
Yes, something most people don't realize is that the US is one of the least trade exposed nations on earth (not counting insane outliers like the DPRK).
That, combined with how rich, populous and internally diverse they are as a collective market means they can throw quite a few grenades into the international trading system with fewer or less obvious consequences that might be experienced by a country for which trade was a larger part of GDP.
So how long before the US equity market wakes up and starts to penalise the extra inflation, yawning yield curve and higher costs of Trump's protectionism? Sadly the answer, looking at Tesla's stock price, is that investors are only too ready to gamble on favouritism. After all, the risk of the future is substantially lessened if certain firms are guaranteed special treatment. It will take a while for the long term effects of such corruption - lower trust all round, higher risk premiums, cronyish rather than business-efficiency logic - to eat into capital formation and returns. This is the tragedy of protectionism and Big Brother economics - its consequences are delayed and it is only after an economic crisis that sanity is restored. But only then if the political system isn't too corroded and allows the appearance of people willing to clear up the mess. Look at Argentina - top 10 in the world for GDP per capita in the early 1900s but destroyed by a combination of economic and political populisms and clientelage. The US is far too powerful to have that fate as such, what is more likely is that it remains powerful but morphs into a pseudo liberal gangster economy, Russia plus Hollywood.
So he’s like that dude from Fury Road with the water. Oh shit, he also controls women’s reproductive capacity… and has a bunch of crazed ignorant followers… he IS the inbred mutant tyrant!
That was a really interesting article, so thanks for that.
I've read elsewhere that the UK is not as exposed to the proposed tariffs because our sales to the US are more service-based than exporting actual products. Is there any truth in that?
There's a bit of truth to it, in that the UK sells the US a touch more services than it does goods - but we're still talking about over $60 billion in annual goods sales and that's not nothing.
Plus the services exports are often financial or professional (so HEAVILY concentrated in London) whereas the goods exports are more geographically diverse (and thus the pain from losing them is too).
Thanks for taking the time to reply, Dmitry. It’s very useful to have a more detailed understanding of the counterargument and to see why the original premise is overly simplistic.
Maybe I dreamt it, but I am sure I saw some suggestion that diverging from the EU (in a practical rather than political way) was an ask of Trump. There are lots of folk in the US who want to see the EU taken down a peg or two and who will have cheered on (read funded) Vote Leave. And of course, others of a more Eastern persuasion.
American chain stores are full of made in China items. That’ll hurt retail a LOT. What will they sell?
Is it likely that Elon, Apple etc talk trump into a less extreme China tariff? Their product price points will be impacted significantly.
Chinese retail / B2B platforms like Temu and Alibaba are dumping a lot of crappy items into western markets, but also very competitively priced manufacturing machinery/ equipment. Curtailing their activity might have quite mixed consequences for USA business.
Thanks for this article . Always good to read Dmitry’s insights.
It really was a very simple election. They made comparisons between Trump’s four year term and Biden’s and the decided that their lives are worst now than four years ago. The question that you haven’t asked is why the difference. You are committed to the theoretical arrangements that govern global economies. Maybe arguments related to particular aspects of the system can be made to show that Trump’s plan is problematic for the system. However, the picture, and this is what people from both political parties are seeing here in the US, is that the globalist system is oligarchic and totalitarian. It serves the few by exploiting the many. The Trump phenomenon is a reaction that was initially to the Clinton-Bush-Obama years of constant war and growing authoritarianism. They were successful in defeating Trump four years ago. Biden administration returned us to that former course. I’m a practical guy. From my perspective, the globalist experiment is in trouble. It has no real accountability for failed policies. It is unsustainable because it requires centralized control and coordination. It’s a fool’s folly to believe that it can be done in world of growing complexity. I don’t know if Trump will succeed. I do know that the American people want something different. The smart people will be those who figure out how to work in this dynamic changing context.
Sincerely hope Labour stay firm and do not allow the NHS to become a bargaining chip that gets tossed Trump's way. It would be the end of the NHS, and Labour.
This is a good outline, but I think it would benefit from two additions, on intermediate inputs (very briefly mentioned at the end) and on linkage with other policy areas.
To take the last one first, Vance has said the US could withhold support from NATO if the EU (continues to) regulate X (Twitter). It’s very conceivable that security assistance will be linked to trade policy in a similar way, further raising the stakes of an option 2-approach.
As for intermediate inputs, remember the Mini’s steering assembly crossing the Channel a dozen or so times during production? Lots of businesses don’t sell finished consumer products, but rather parts and widgets which are then used by US manufacturers. Those supply chains will become far more uncertain, not to mention costly, when those US manufacturers have to factor in some suppliers securing waivers or pay prices inflated by tariffs. Let alone if the supply chain includes China as well as other nations.
Say a UK company buys inputs in China, adds value in UK (or elsewhere) and then sells on to a US manufacturer, will the China-tariff apply? What if some of the links in the chain enjoy waivers but others don’t? This is a recipe for total chaos, manifest corruption and endless litigation.
And indeed, Trump doesn’t give a damn.
> Say a UK company buys inputs in China, adds value in UK (or elsewhere) and then sells on to a US manufacturer, will the China-tariff apply?
This would depend on the non-preferential rules of origin - a kind of formula used to calculate how "British" a good that's "made in britain" is.
So if the UK makes a car, but buys the tires and mirrors from China, then the Chinese tariff would probably not apply (because the value addition in China was low).
Ditto if the UK buys cotton from China (hypothetically) and then turns it into a t-shirt for export to the US (because t-shirts are substantively a different thing than cotton, a transformation has occured).
However if the value of the work done in China on the UK good begins to creep up, as a percentage of the goods total value, then yes the US may treat the good as being sufficiently Chinese to earn the extra tariff.
Both Vance and Trump seem to take a very transactional approach. They also both seem convinced that they have all the cards and it's their way or the highway. On the whole, that is correct but there are some American products they want us to keep buying and some they would like us to take. As said just the article, European governments cannot tell businesses who to buy from but there are lucrative government contracts they would like to win (arms and NHS supplies)
And that's the worrying bit; further NHS privitization for favourable tariff conditions. Unfortunately I wouldn't put it past Starmer, Reeves, and Streeting in signing off on the continued erosion of that institution.
What about the sale of US arms? Is that an American industry that would be hit if Trump pulls out of NATO and we all stop buying arms from the US? Does that give us a bargaining chip?
Difficult to replace some of the systems I think (in my completely non expert opinion). We are solidly committed, rightly or wrongly, to the F-35 for instance.
I'm sure you're right. However, there are alternatives we could move to, even though it wouldn't be easy
Only one line in and a Phineas & Ferb reference. I'm definitely on board for this.
Excellent as usual Dmtri
Yes, something most people don't realize is that the US is one of the least trade exposed nations on earth (not counting insane outliers like the DPRK).
That, combined with how rich, populous and internally diverse they are as a collective market means they can throw quite a few grenades into the international trading system with fewer or less obvious consequences that might be experienced by a country for which trade was a larger part of GDP.
- Dmitry
But for the general population, they will see higher prices on everything and less choice.
So how long before the US equity market wakes up and starts to penalise the extra inflation, yawning yield curve and higher costs of Trump's protectionism? Sadly the answer, looking at Tesla's stock price, is that investors are only too ready to gamble on favouritism. After all, the risk of the future is substantially lessened if certain firms are guaranteed special treatment. It will take a while for the long term effects of such corruption - lower trust all round, higher risk premiums, cronyish rather than business-efficiency logic - to eat into capital formation and returns. This is the tragedy of protectionism and Big Brother economics - its consequences are delayed and it is only after an economic crisis that sanity is restored. But only then if the political system isn't too corroded and allows the appearance of people willing to clear up the mess. Look at Argentina - top 10 in the world for GDP per capita in the early 1900s but destroyed by a combination of economic and political populisms and clientelage. The US is far too powerful to have that fate as such, what is more likely is that it remains powerful but morphs into a pseudo liberal gangster economy, Russia plus Hollywood.
So he’s like that dude from Fury Road with the water. Oh shit, he also controls women’s reproductive capacity… and has a bunch of crazed ignorant followers… he IS the inbred mutant tyrant!
That was a really interesting article, so thanks for that.
I've read elsewhere that the UK is not as exposed to the proposed tariffs because our sales to the US are more service-based than exporting actual products. Is there any truth in that?
There's a bit of truth to it, in that the UK sells the US a touch more services than it does goods - but we're still talking about over $60 billion in annual goods sales and that's not nothing.
Plus the services exports are often financial or professional (so HEAVILY concentrated in London) whereas the goods exports are more geographically diverse (and thus the pain from losing them is too).
Thanks for taking the time to reply, Dmitry. It’s very useful to have a more detailed understanding of the counterargument and to see why the original premise is overly simplistic.
Very good and useful. Thank you. Sorry to point out a typo: "tidal way".
Ian fixed it, I think! Thank you.
Maybe I dreamt it, but I am sure I saw some suggestion that diverging from the EU (in a practical rather than political way) was an ask of Trump. There are lots of folk in the US who want to see the EU taken down a peg or two and who will have cheered on (read funded) Vote Leave. And of course, others of a more Eastern persuasion.
American chain stores are full of made in China items. That’ll hurt retail a LOT. What will they sell?
Is it likely that Elon, Apple etc talk trump into a less extreme China tariff? Their product price points will be impacted significantly.
Chinese retail / B2B platforms like Temu and Alibaba are dumping a lot of crappy items into western markets, but also very competitively priced manufacturing machinery/ equipment. Curtailing their activity might have quite mixed consequences for USA business.
Thanks for this article . Always good to read Dmitry’s insights.
It really was a very simple election. They made comparisons between Trump’s four year term and Biden’s and the decided that their lives are worst now than four years ago. The question that you haven’t asked is why the difference. You are committed to the theoretical arrangements that govern global economies. Maybe arguments related to particular aspects of the system can be made to show that Trump’s plan is problematic for the system. However, the picture, and this is what people from both political parties are seeing here in the US, is that the globalist system is oligarchic and totalitarian. It serves the few by exploiting the many. The Trump phenomenon is a reaction that was initially to the Clinton-Bush-Obama years of constant war and growing authoritarianism. They were successful in defeating Trump four years ago. Biden administration returned us to that former course. I’m a practical guy. From my perspective, the globalist experiment is in trouble. It has no real accountability for failed policies. It is unsustainable because it requires centralized control and coordination. It’s a fool’s folly to believe that it can be done in world of growing complexity. I don’t know if Trump will succeed. I do know that the American people want something different. The smart people will be those who figure out how to work in this dynamic changing context.