Is the tide turning?

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.

Buying Greenland - a valuation perspective

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!

Dealing with Donald

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.

The myopic Mr Trump

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.

Steeled for trouble

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.

Trump's climate clanger

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 wwhat 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.