We woke up this morning to the news that President Trump is getting tough on trade tariffs to reduce US imports. With up to 25% on imports from China, Mexico and Canada this could be seriously damaging to their economies and raise the cost of living in the USA. Although it is not clear what the impact will be on the UK or the rest of Europe we cannot expect to get off completely free.
Trump is aiming to reinvigorate US industry by ensuring it can compete with economies where labour costs are lower. That is not an unreasonable proposition but the method chosen is a very blunt instrument. It has already had an impact on worldwide stock markets (my own stock market portfolio is down 1.6% today at the time of writing and it was down also on Friday).
Some of the damage done is from the aggressive rhetoric that Trump has chosen which may fade over time as countries affected retaliate but clearly some sectors of the economy could be badly affected.
The world is now a very complex economy with industries and countries very dependent on each other. A recently published book that explains some of this is the book “Material World”.
Book Review: Material World by Ed Conway (subtitled: A Substantial Story of Our Past and Future).
This is an educational tome which explains what the sources and uses of common products such as sand are – in that case in the semiconductor industry in the form of silicon.
It’s certainly a very good analysis of some industries but at 501 pages it is yet another book that is too long for my liking. However it helps to explain why countries are so interdependent. Although interfering in the free economies can often be worked around at pace (as happened in World War II when Germany had to invent substitutes for some products as it lost access to oil and rubber) it is economically damaging in the short-term.
Free trade is important to maintain if you want a vibrant economy.
The UK has just decided to damage its own economy by a decision in a Scottish court that permits for oil and gas exploration should take into account end-user emissions. This is judges taking decisions that should be reserved for politicians and the electorate. This could be very damaging for companies such as Shell who planned to develop the Jackdaw gas field. Let us hope that this decision is overturned but with Ed Millibrain as Secretary of State for Energy and Climate Change I am not hopeful that the UK Government will see sense.
Meanwhile China and the USA are expanding energy production (hundreds of more coal mines in China for example) while the UK simply reduces its own energy sources and becomes more reliant on foreign imports. We cannot replace electricity production by wind and solar farms alone and expanding the electricity grid is not a short-term fix.
Politicians need to read the Conway book for enlightenment.
Roger Lawson (Twitter: https://x.com/RogerWLawson )
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