One of the mounting concerns over the last four years has
been the extent to which policy is being conducted on the basis of belief
rather than evidence – particularly in the Anglo-Saxon world. The danger was
always that at some point those who ignored the evidence would start to come
unstuck. We appear to be reaching this point. The question is whether voters
are beginning to see through the bluster.
This was exemplified by two items that surfaced on Twitter
yesterday from people who are not known for their adherence to evidence-based
analysis. The first example was provided by the current occupant of the White
House whose TV interview on Covid cases in the US was a car crash of epic
proportions.
Amongst other things, Trump failed to appreciate the importance of normalising
the number of cases and deaths to account for differences in the size of population
and appeared not to understand the argument that the journalist from Axios was
putting to him. As much as anything, it showed up Trump’s inability (or maybe
unwillingness) to engage in intellectual debate. It was far worse than anything
I remember four years ago during the presidential campaign. Having recently
watched the outstanding film Hillary by Nanette Burstein, I could not help wondering why the US public hated Mrs
Clinton so much that they chose a reality TV star in preference to her as president
(if you are interested in recent US politics, the film is a must-see).
The second item was as bad, if not worse in its own way. This series of Tweets by former leader of the Tory party and Brexit hardliner MP Iain Duncan Smith,
explaining why the EU Withdrawal Agreement was such a bad deal for the UK, was incredible.
IDS argues that the EU wants “our money
and they want to stop us being a competitor.” As if that were not enough, the following statement was both wrong and a masterclass in irony: “To avoid their own budget black hole, the EU gets £39billion as a
“divorce payment” from us, reflecting our share of the current EU budget. But
it gets worse. Buried in the fine print, unnoticed by many, is the fact we
remain hooked into the EU’s loan book.”
It is wrong because it fails to differentiate between the
liabilities incurred by the UK which it must meet on its departure and some
kind of exit payment. The UK is not somehow filling in holes in the EU budget. It
agreed to undertake certain projects whilst it was a member of the EU and agreed
that it must pay its share of the liabilities incurred. But the supreme irony
is in the phrase “Buried in the fine
print, unnoticed by many.” It is
the job of MPs to scrutinise legislation. The text of the Agreement was
published in October 2019. It then went through the UK parliament, where bills are
debated three times by the House of Commons before being passed into law precisely
to avoid any hidden items from sneaking through. So what precisely had he and
his colleagues been doing prior to January 2020 when they voted by 330 to 231 to
pass the Withdrawal Bill?
The sheer absurdity of the ultra-Brexiteer position is
difficult to understate. They clearly seek absolute autonomy over every aspect
of the UK’s legal and economic framework without ever once acknowledging that
no country in the world – not even the superpowers – have that kind of control.
This handy little guide gives an overview of all the areas where the Centre for Brexit Policy think
tank believes the UK should simply rip up any agreements with the EU in order
to obtain absolute sovereignty. The people who believe this stuff are simply
zealots who have no regard for how the international economy works. I have been
calling them out for the past seven years but like cockroaches their arguments
just won’t die, irrespective of how much logic you apply to them.
They share with Trump a desire to break down the status quo
without giving any real thought to what might come in its place. Their various
projects run on finding grievances in order to stay relevant by tapping into
the perennially dissatisfied. In a way, the worst thing that could happen to
them is that we give in to their fantasies because then they would become
irrelevant, having nothing to protest against. But that way madness lies, so we
won’t go there.
All this begs the question whether voters think differently
now compared to four years ago? In the US, Trump has had worse net approval
ratings over the last three years than he is polling today but you have to go
all the way back to summer 2017 to find them (chart). It is not a good look
just three months before a presidential election. Nor do the polls find much support for Brexit (at least not in the form proposed by the British government over recent
months). According to the European Social Survey, just 35% of Brits supported
Brexit, with 57% wanting to rejoin the European Union. It is just one survey
and we have learned not to trust the polls but this is consistent with the
message coming from a number of polling sources in recent years. There is no
appetite for the hard Brexit which the UK government says it is prepared to
deliver.
The collective cries of rage on both sides of the Atlantic
were hailed in many quarters as the full throated roar of a population willing
to take back control and make their respective countries great again. But after
giving the electorate just four months to consider the immensely complex topic
of Brexit, which was decided by the narrowest of majorities, politicians have
had four years to implement it and now its leading protagonists do not appear
to like what they voted for. In the US, such was Donald Trump’s popularity that
he actually polled far fewer votes than Hillary Clinton. Indeed the vote
deficit was the largest in history of anyone going on to be declared president
(almost 2.9 million). There was no huge majority in favour of the populist
policies on offer. And now that they are proving difficult – if not impossible
– to live up to, maybe the sound you hear is that of the tide turning.
A history of US territorial purchases
Recent indications that Donald Trump is mulling the prospect
of the US buying Greenland are not quite as ridiculous as many people seem to
think. Indeed, the US has a long history of buying territory. Back in 1803, the
newly formed United States bought the territory of Louisiana from France for $15 million ($341 billion in current prices). Large chunks of what are now Arizona and New Mexico were bought from Mexico in 1854 for $10 million ($305 billion in current prices), whilst in 1867 it bought the territory which now comprises the state of Alaska from the Russian Empire for a total of $7.2 million ($124 billion in current
prices).
Moreover, the US has previously tried twice (and failed) to
buy Greenland. In 1867 it looked into the possibility of acquiring Iceland and Greenland,
and in 1946 President Truman offered Denmark $100 million of gold in exchange
for Greenland. Based on the standard purchasing power measure, used in the
calculations above, this is equivalent to $1.3 billion in current prices but
based on gold price movements over the last 73 years this rises to the
equivalent of $4 billion.
From a historical perspective, this is all both fascinating
and ironic. It is ironic given the hostility of the United States to
imperialism in the first half of the twentieth century that its history is so
littered with examples of territorial acquisition. It is also fascinating
because it demonstrates the international trade in territory that has taken
place in the relatively recent past. However, it is a practice that has died
out largely because the expansion of global trade means that countries are able
to acquire what they need from elsewhere at a much lower cost. Moreover the issue
of inhabitants’ rights mitigates against the practice. It is much more
difficult to sell people’s rights to the highest bidder these days following
the advent of pesky irritants such as the Universal Declaration of Human Rights,
adopted by the United Nations in 1948. Of course, you don’t actually have to
buy the outright ownership of territory: You can lease it, as Britain did with
large parts of Hong Kong between 1898 and 1997 and as the US still does with
the infamous Guantanamo Bay in Cuba.
Applying corporate valuation methods
Although Denmark has rejected the idea of selling Greenland,
there is nonetheless an interesting debate to be had about how to value the
sale of territory. It is thus illustrative to think about how companies are
valued. There are essentially three main methods: (i) asset valuation; (ii) the
value of revenue streams and (iii) a discounted cash flow approach. We can apply
all of these methods in assessing the value of territory.
(i) Valuing the assets
One of the standard measures of corporate valuation is the
ratio of the market price to the book value of assets. If we assume that this
is unity, we can use international data on national balance sheets as a measure
of the market value of all financial and non-financial assets. The latter
comprises items such as the value of buildings and other fixed assets such as
machinery; the value of inventories and natural resources such as land.
Financial assets are the net value of all currency holdings, gold, financial
instruments and net loans outstanding. In the UK last year, the value of net
financial assets was near zero and the total net worth of £9.75 trillion was
comprised of net non-financial assets. The US has the world’s highest net worth
(chart), measured at $98.2 trillion in 2018 (31% of the world total), followed
by China at $51.9 trillion (16.4% of the total).
For the record, Denmark’s net
worth was $1.3 trillion (0.4% of the world total). If we allocate
Greenland’s share on a pro rata population basis relative to the whole of
Denmark, its net worth drops out at $12.5 billion – around what the US Federal
government spends on the Disaster Relief Fund, or 1.8% of the defence budget.
This is, of course, a rough and ready calculation which takes no account of the
expected future value of Greenland’s natural resources but it is a good
starting point.
(ii) Valuing the revenue stream
What about valuations on a revenue basis? The obvious metric
to use is GDP where the US is again ahead of the pack with total output last
year recorded at $20.5 trillion. Being generous, Greenland’s GDP last year was around
$3 billion. If we are applying corporate valuation methods, the standard
measure is to value the company at a multiple of expected earnings. Applying a
P/E multiple of 15x, which is in line with most major equity markets, this
implies a market valuation for Greenland of $45 billion – slightly short of
Montana’s GDP ($49.2 bn last year) but higher than that of Wyoming ($39.8 bn). If
the US were engaged in a corporate transaction it would have no real difficulty
in finding the funds out of its cash flow.
(iii) The discounted cash flow
The discounted cash flow issue is more tricky. Climate
change is having a big impact on Greenland’s geography and according to the
Brookings Institution in 2014, “due to
global warming, Greenland’s mineral and energy resources … are becoming more
accessible.” According to one report,
oil could contribute around $78 bn to the national coffers over the next 40
years and after accounting for development costs, “a discounted price for future energy and other resources suggests a
price in the $30 billion range could be fair value. Even adding the 10X current
GDP and the energy resource value together would be a value of about $57
billion.”
How to fund the acquisition
So there you have it. On the basis of the estimates produced
here, the US would have to stump up somewhere around $50 billion to purchase
the territory of Greenland – or about 0.25% of annual GDP. This is rather less
than the present value amount of nineteenth century territory purchases. How
might it be funded? A straight cash swap, in which the Fed prints the requisite
dollars, would require an increase in the value of notes in circulation of 3%. A
debt for equity swap, in which the US Treasury issues notes, would require an
increase of just 0.3% in the amount of debt held by the public. In financial
terms, the US would clearly not have a problem funding the acquisition.
The resistance of reluctant sellers
The only trouble is, Denmark is unlikely to sell at any
price. Soren Espersen, foreign affairs spokesman for the populist Danish
People's Party, said of Trump in a broadcast interview, "if he is truly contemplating this, then this
is final proof, that he has gone mad.” But we should not be overly
dismissive – like many old ideas coming back into fashion, the notion of
selling territory to earn a bit of extra cash could appeal to governments in
these straitened economic times.
Indeed, rather than going to war with Iran,
the US could attempt a hostile financial takeover by forgoing the annual GDP of
a state such as Connecticut to buy it (this would cost around $272 bn on an
asset valuation basis). It would come more expensive if we used the 15x P/E
multiple, where the GDP of California, Texas and New York would be required to
meet the asking price of $6.8 trillion. But let’s face it, we have heard a lot
worse ideas from Trump!
British Prime Minister Benjamin Disraeli is credited with
coining the phrase “There are three kinds
of lies: lies, damned lies and statistics.” But Disraeli never met anyone
like Donald Trump who has created a fourth kind of lie in the form of fake news
– a damned lie of a wholly different order of magnitude. Fake news goes well
beyond a mere bending of veracity – it reflects an untruth created with the express purpose of
dissemination via various forms of media in order to attract such a huge
following that it becomes virtually impossible to counter with the truth.
Trump’s world view both informs and is informed by fake
news. His attitudes towards trade, for example, which his Administration views
as a zero-sum game, are informed by the dodgy input of Peter Navarro who
believes that the US trade deficit is a major drag on American economic
prosperity. But as Trump pumps this message to a wider audience, so he gains
support for taking measures that defy economic rationality. The idea of
engaging in a trade war with China, for example, is an illogical proposition in
which there are no winners – only losers. Admittedly, since the US imports much
more from China than it exports, it can ratchet up tariffs on a far wider range
of goods than China can match and in that sense the US would expect to “win” a
trade skirmish. But this is a very short-term way of looking at things. There
is little doubt that China will overtake the US as the world’s largest economy
before too long and as a result it will write the rules governing world trade.
If China takes to heart the lesson that economic nationalism is the way to go,
before too long it will be able to throw its weight around in ways that the US
may not like.
Even in the short-term, China can make life difficult for
those US firms operating in the Chinese market. For example, Apple’s sales in
China (at around $13bn) are only slightly lower than those in Europe ($13.9bn)
and are growing at a much faster rate. Over the last six years, Apple’s
European sales revenue has grown at an average rate of 2% per annum versus 19%
in China. Another way to think of this is that Apple generates sales in China
equivalent to the amount that 235,000 workers would generate in terms of salary
income. In an accounting sense, these sales compensate for the absence of jobs
that would otherwise be located in the US.
It’s all about swings and roundabouts.
Another aspect of Trump’s world view that increasingly
disturbs is his ability to ride rough shod over long-standing allies. He has
threatened to withdraw from NAFTA and has already imposed duties on European
steel imports. Last week’s visit to Europe was hardly a triumph of diplomacy.
Before sitting down with Angela Merkel, Trump denounced Germany as a "captive of Russia" and suggested
that "Germany is totally controlled
by Russia." He further undermined the US commitment to NATO by
demanding that every member should reach the agreed threshold on defence
spending of 2% of GDP by next year (the current target date is 2024) otherwise
he would "go his own way."
During his visit to NATO headquarters in Brussels he even demanded a rise in
defence spending to 4% of GDP. He does have a point that there has to be a
greater degree of burden sharing on defence, but the way to go about it is not
to annoy allies because at some point you are likely to need them again.
Similarly, his intervention in the Brexit debate was
bizarre. According to The Sun,
Theresa May’s soft Brexit approach means that the UK’s “trade deal with the US will probably not be made.” His intervention
in a domestic British issue was – to say the least – unusual and his backing
for Boris Johnson was highly inflammatory. Trump subsequently backed away from
criticisms of Theresa May reported by The Sun, claiming that it was “fake
news.” But this fake news was captured on tape. Trump claims to have been
similarly misquoted following his meeting with Russian president Putin. When asked whether it was Russia that
interfered in the 2016 presidential election campaign, Trump responded “I don't see any reason why it would be.”
He later backtracked saying, “In a key sentence in
my remarks, I said the word 'would' instead of 'wouldn't’ … The sentence should
have been: 'I don't see any reason why … it wouldn't be Russia.”
What we are faced with is a US President who his allies
simply no longer trust – certainly not on trade issues or defence cooperation.
Increasingly they cannot take what he says at face value because even he is not
prepared to stand by what he says. Martin Wolf in the FT offers a view of Trump based on the fact that the US position at the top of
the pyramid is threatened by China and his nationalist kneejerk reaction is
what the people want to hear. But he also suggests that the US economy “has recently served the majority of its
people so ill” that Trump is the anti-establishment politician who can give
“the rich what they desire, while
offering the nationalism and protectionism wanted by the Republican base.”
As one of the below-the-line reader comments put it, “America is being led by an ignoramus who thinks he's a genius, on
behalf of plutocrats who claim to be populists, at the expense of the desperate
who will believe anything.” Better perhaps to say “at the expense of the desperate who need something to believe in”
but the point is made.
Trump is the response to a system that failed: He exists
because the old guard led the economy over the cliff in 2008 and are perceived
to have left ordinary voters to pick up the tab. The reason why many Germans and
pro-Remain Brits are scratching their heads at Trump’s behaviour is because
they are not the ones who have been left behind. They don’t need to believe in
a Trump-like figure and they can see through fake news. But they do not form a majority.
Moreover, Trump does not play by the old rules because he gains nothing from
doing so. There is thus no point in trying to tackle him on conventional terms.
Quite how we deal with a problem like Donald is hard to work
out. Part of me hopes that he is a storm that will blow itself out when his
policies are demonstrated to have failed. But I fear that he could be the first
in a series of nationalist politicians who decide to tear up the rulebook in
order to get things done. We only need look at Erdogan in Turkey or Duterte in
the Philippines to see that there is a market for strongman politicians. And if
the west becomes similarly infected then the rule-based economic system we have
all grown up with will be in serious trouble.
European newspapers today lead with the story that Donald
Trump has disassociated the US from the communique agreed at the G7 summit in
Canada. There did not seem to be anything particularly controversial in the
communique
which, amongst other things, “acknowledge[s]
that free, fair and mutually beneficial trade and investment … are key engines
for growth and job creation. We … underline the crucial role of a rules-based
international trading system and continue to fight protectionism. We will work together to enforce existing
international rules … to foster a truly level playing field.” In short,
everything that that the international community has endorsed for the past 70 years.
Then this
which is an ad hominem attack on a fellow G7 leader – and a good
neighbour to boot.
This, of course, comes after the US imposed tariffs on steel
and aluminium imports, which affected Canada and the EU. It follows the unilateral
US decision to walk away from the Joint Comprehensive Plan of Action designed
to slow the rate at which Iran develops its own nuclear capacity – something by
which the EU has set great store. More damage has been done in the last couple
of months than at any time since the 1930s to the global order which has
underpinned economic prosperity and stability since 1945, as European leaders realise
that they can no longer trust a US leadership which puts its own interests
first in such a naked way. There is, of course, nothing wrong with putting your
own interests first – all nations do. But the way to do it is in the conference
hall behind closed doors. In any case, the US has the clout to get its own way
most of the time. But capricious decision making, of the kind demonstrated by
Trump, destroys trust and it will cause a rethink on the global stage.
It puts the UK in a particularly difficult position. The
British government has long believed that it has a special relationship with
the US and that it could turn to it for some support in the wake of Brexit (there
again, most nations think they have a special relationship). Trump’s actions of
late have confirmed what some of us thought all along – the UK cannot rely on
the US. I will deal with the ramifications of last week’s Brexit events in my next
post but it is now clearer than ever that the UK’s future lies with Europe –
for better or worse. The government will thus have to think very carefully
about whether and how it wants to loosen ties with the EU at a time when
geopolitical threats are rising and the degree of competition from the likes of
China are intensifying. This makes Boris Johnson’s recent (leaked) remarks
about Trump all the more interesting. “Imagine
Trump doing Brexit … He’d go in bloody hard… There’d be all sorts of
breakdowns, all sorts of chaos. Everyone would think he’d gone mad. But
actually, you might get somewhere. It’s a very, very good thought.”
It’s a very, very bad thought for many reasons. Not the
least of which is that the UK does not have the clout of the US. And as Louis Staples
put it in The Independent, “What is most worrying here is that Boris
seems to admire the chaos that encircles Trump. Suggesting that a man who
simply can’t decide whether he wants a summit with North Korea or not, and
whose shambolic and widely condemned decision to move the US embassy in Israel
to Jerusalem … shows borderline contempt for the wellbeing of UK citizens and
those abroad.”
What about the rest of Europe? There has been mounting
concern for some time that the US has been throwing its weight around to excess.
There is, for example, a lingering grievance that European banks were singled
out for transgressions by the US authorities in the wake of the financial
crisis and were slapped with heavy fines. There is also concern that the US is
increasingly willing to exert its financial muscle by putting pressure on
countries using the dollar to process transactions which run via the US financial
system, if they fall foul of the US government’s policy objectives. Moreover,
the US can impose extraterritorial or “secondary” sanctions by refusing to do
business with a company that does business with a blacklisted party. If Europe
continues to feel bullied in this way, it can and will do more to encourage the
use of the euro as a means of international payment. Also, the inexorable rise
of China means that its currency will eventually become part of the global reserve
system resulting in a diminution of the dollar’s role (another subject I will
deal with at a later date), and with it a reduction in the US’s ability to exert
its financial muscle.
As The Economist put it this week,
“In the short term some of Mr Trump’s
aims may yet succeed … Yet in the long run his approach will not work. He
starts from false premises. He is wrong to think that every winner creates a
loser or that a trade deficit signifies a “bad deal”. He is wrong, too, to
think that America loses by taking on the costs of global leadership and
submitting itself to rules On the contrary, rules help deter aggressors, shape
countries’ behaviour [and] safeguard American interests.” In short, all
this posturing may help Trump's poll ratings but he will not be the one who has to pick
up the pieces when it all goes wrong.
The announcement last week by Donald Trump that he intends
to levy tariffs on US imports of steel and aluminium, of 25% and 10%
respectively, was the first indication that the President intends to follow up
on his campaign promises. The announcement came a matter of hours after I sat
in a client meeting and said something to the effect that Trump had so far not
implemented the worst of his campaign promises, thereby demonstrating my
great prescience.
It came at a bad time for markets, which were beginning to
recover from the wobble at the start of February and the S&P500 is
currently around 5.7% below the high achieved in late January. What
particularly spooked markets was Trump’s claim that “trade wars are good, and easy to win.” Nothing could be further
from the truth, as the experience of the 1930s demonstrated. They are nasty and
do not result in any winners – everyone loses. Obviously, the steel tariffs
will matter because the US is the world’s largest steel importer (26.9 million
tonnes in the first nine months of 2017). But who will pay the price? Initially,
it will be US industry which uses the steel as an input but ultimately it will
be consumers – primarily in the US but also those elsewhere which buy US
products using imported steel as an input.
The initial kneejerk reaction was that this was a way of hitting
back at China, which has been the focus of the President’s displeasure for some
time. Admittedly, China was accused by the EU of dumping steel on the world
market at artificially low prices. Only last April the EU introduced levies
ranging from 18.1% to 35.9% on certain types of Chinese rolled-flat steel
products for a five year period. But China is not even in the top 10 sources of
US steel imports. Canada, Brazil, South Korea, Mexico and Russia (in order of
importance) account for 57% of the total – and the irony is that two of these
countries are NAFTA partners (see chart). With regard to aluminium imports,
Canada alone accounts for 56% of the US total, followed by Russia (8%) and the
UAE (7%), with China lagging behind in fourth with a mere 6% share.
Trump also turned his focus on the EU at a press conference
yesterday, saying “The European Union has
been particularly tough on the United States … They make it almost impossible
for the United States to do business with them. And yet they send their cars
and everything else …” Spot the EU exporter in the list! In fact, Germany
is the only EU country which manages to get on the steel importers list, coming
in ninth, accounting for 3% of the US total.
We are still waiting to hear which countries will be
affected by the tariffs and it really does look like the President has lashed
out without regard for the consequences of his actions (why should we be
surprised?). There has been speculation in the media that Trump’s actions were
nothing more than an angry reaction following the resignation of communications director Hope Hicks, and a series of other incidents. If true, it certainly raises a concern about
the state of mind of the man with his hand on the nuclear button.
The damage from the trade action is likely to be twofold. On
the one hand, there will be some limited form of retaliation from US trade
partners, and even though an all-out trade war is unlikely, it is still a very
bad sign. Second, it may raise questions about the quality of people prepared
to serve in the President’s Administration. Gary Cohn, Trump’s highly rated
chief economic adviser, has already resigned in opposition to the plan and a
number of other cabinet members are believed to be opposed, including Treasury
Secretary Mnuchin and Secretary of State Tillerson.
Perhaps more importantly, it calls into question the
rules-based system that underpins the global economic order which has served
the western world so well for 70 years. If the US, which has acted as guarantor
for so long, no longer appears inclined to play by the rules, why should the
likes of China or India, which are set to become major economic powers in the
course of the 21st century? It will certainly give China greater moral
authority to write a set of trade rules to suit itself. And on this side of the
Atlantic, at a time when the UK has decided that it no longer wants to be part
of the EU, the customs union or single market, it should give those pushing for
trade deals with the rest of the world pause for thought about who our friends
are and where our interests lie.
Although much of the current media attention is focused on
Donald Trump’s rather unfortunate comments in the wake of the latest London
terror attack, his decision last week to withdraw the US from the Paris
Agreement on climate change was a much bigger deal. To recap, the agreement was
drawn up in the first place in a bid to limit global greenhouse gas emissions
in order to curb the rise in global temperatures and thus prevent some of the
worst effects of climate change from causing even more environmental damage.
There are 195 signatories to the treaty, with only Syria, Nicaragua and the
Vatican not having signed up. However, the US decision to withdraw not only
drives a coach and horses through global cooperation efforts on climate change,
but it raises question marks against the commitment of the US to a whole range
of international agreements.
Turning first to the climate issues, I am not a climate
scientist so I am bound by the consensus of expert opinion which has done the
work and drawn the conclusions. What everyone agrees on is that the earth is
warming rapidly – global temperatures are around 2 degrees higher than when
measurement commenced in the late nineteenth century. We also know that the
amount of carbon dioxide in the atmosphere is at unprecedented levels (see
chart, courtesy of NASA).
The Intergovernmental Panel on Climate Change (IPCC) reckons that “anthropogenic greenhouse gas emissions … are
extremely likely to have been the dominant cause of the observed warming
since the mid-20th century.” Note that it does not say with 100%
probability that climate change is man-made, but “extremely likely” is the sort
of language scientists use when they are fairly sure. It may be that they are
wrong, but until such times as the world’s most reputable scientists change
their minds I’ll go with what they know, rather than what various interest
groups believe to be true. And even if the scientists are wrong, it is a better
insurance policy to take offsetting action rather than ignore them and find out
they were right.
The science of climate change also suggests that global
warming will have significant impacts on weather patterns, crop growing cycles,
access to water and has the potential to disrupt the way we live our lives (for
an overview of all these issues, see the Stern Review, which reported in 2006).
As Stern pointed out, climate change “entails costs that are not paid for by those who create the emissions …
Questions of intra- and inter-generational equity are central. Climate change
will have serious impacts within the lifetime of most of those alive today.
Future generations will be even more strongly affected, yet they lack
representation in present-day decisions.”
Trump’s decision is the ultimate in short-term thinking
designed to satisfy a tiny proportion of his country’s electorate whilst
ignoring the wider consequences for their children (viz the wonderful response by Emmanuel Macron to Trump’s decision).
Quite what better deal Trump has in mind for American workers by pulling out of
the agreement is hard to fathom. After all, there are fewer people employed in
coal mining in the US than in the green tech sector so it is not exactly a
rational response to domestic issues. It is also a wider abrogation of duty to
the rest of the planet, for as Stern also pointed out, solutions to the climate
change problem require a global response.
There is thus general agreement that Trump’s strategy is
self-defeating with regard to climate issues. But an equally serious concern is
that an America first strategy runs counter to the rules-based system which underpins
the world economic architecture and which has served the US so well for the
past 70 years. An America which does not adhere to the treaty commitments to
which it has signed up cannot expect others to play by the rules which the US
flagrantly ignores. It may “only” be climate change, the implications of which
will not become fully evident until after Trump is long gone, and in any case
the US can always sign up again under a different president. But can the US
expect all countries to adhere to the rules on global trade if for some reason
it does not suit them? To what extent can the US’s military allies in Asia or
Europe rely on its support?
International diplomacy is a game of give and take. Unfortunately,
Trump appears to see it as a game of winner takes all. Moreover, he has not yet
demonstrated that he understands the notion of cooperation on global issues
(not that the British government is in any position to cast aspersions). But if
Trump has any pretensions to providing leadership on a global scale, the
climate change policy needs to be rethought. Future generations of voters may
thank him for it.
