Category Archives: Economic

Economic, Middle East, Politics, Society, United States

Trump’s capriciousness is undermining international stability

GEOPOLITICS

Intro: Trump boasted he would make America great again. What bitter irony that he’s now presiding over its slow demise as a superpower

President Donald Trump has never been shy of hubris in his self-declared role as a negotiator of world peace.

When sworn into office for the second time in January last year, the 47th US President claimed he would be ushering in a new era: “My proudest legacy will be that of a peacemaker and unifier,” he proclaimed.

Just days ago, following the award of the Nobel Peace Prize to UN human rights commissioner Navanethem Pillay and his evident belief it should have gone to him, he went further: “I have saved more lives than anyone in history.”

And yet since his inauguration it has become abundantly clear this president’s most enduring legacy may well be the greatest threat to the world order for decades.

From the battlefields of Ukraine to the oil-rich Persian Gulf and volatile waters of the Red Sea, the consequences of Trump’s erratic foreign policy are being felt across the globe.

At precisely the moment when the world desperately needs calm and experienced leadership – with 130-armed conflicts raging globally – it finds itself dependent on a US president whose capricious behaviour is directly undermining international stability.

The missile attacks on Riyadh airport by Yemen’s Houthi rebels, which killed 14 people and injured hundreds more, represented a chilling and unprecedented escalation in a Middle Eastern conflict that threatens to plunge the global markets into further imminent chaos.

For those in Saudi Arabia and beyond, it remains a terrifying reality that the Houthis, an Iranian-backed militia whose fighters have often been dismissed as little more than barefoot tribesmen, now not only have the capacity to throw the Arab world’s largest economy into further turmoil but also to inflict such economic damage on the West that it could dwarf the ongoing war between America and Iran.

To date, much attention has been focused on Iran’s blockade of the Strait of Hormuz, the narrow waterway through which enormous quantities of the world’s oil and gas ordinarily pass. The disruption sent shockwaves through energy markets, caused prices to soar, and worryingly threatened supplies of fuel and fertiliser, the lifeblood of industrial and agricultural production.

Several hundred miles to the south-west, however, lies another maritime bottleneck that might yet prove even more damaging, particularly for Britain and Europe.

The Bab al-Mandab Strait, separating Yemen from the Horn of Africa, is the gateway to the Red Sea and, ultimately, the Suez Canal.

It is one of the great arteries of international commerce, carrying not only oil and liquified natural gas but container ships transporting everything from Chinese cars to Japanese electronics and white goods. If the Houthis succeed in closing this passage, the consequences could be catastrophic.

The Red Sea corridor handles roughly 30 per cent of global container traffic and, while it is one thing to pay more to fill your car, it is quite another when the supply of vehicles, fridges, washing machines, and pretty much everything else is suddenly imperilled.

This is not a theoretical threat. The Houthis have demonstrated through their attacks on Riyadh airport that they possess missiles and drones capable of penetrating defences in Saudi, a country that has spent billions on sophisticated military equipment.

And at a moment when the future of world trade has seldom looked more vulnerable, the current US president is so unpredictable we can no longer assume Washington would intervene in the Bab al-Mandab Strait to protect global commercial shipping.

While the US Navy may have done so under Joe Biden – in 2024 American carrier strike groups were deployed to counter Houthi attacks on shipping in the Red Sea, albeit ineffectively – the current US President has demonstrated an alarming unwillingness to protect anything other than American interests.

Only last month, for example, he called off a missile strike against the Houthis in return for a guarantee that attacks on US vessels in the area would not take place. And he will be fully aware that if he launches strikes, the Houthis may well attack US bases in the Middle East.

Despite his bellicose rhetoric, the truth is that President Trump looks desperately weak when confronted with the realities of international power. Supporters of Trump believed they were electing an “American First” president that would extricate them from expensive foreign entanglements, rebuild the economy, and end the military adventures of past administrations.

Instead, their erstwhile hero has achieved almost precisely the opposite. And with midterm elections fast approaching, the president is staring in the face the political consequences of his overseas adventures. With just over two weeks to go before the vote, polls show he is failing to arrest his declining popularity.

This is the primary reason why Trump decided to ease sanctions on Russian diesel, pursuing short-term political expediency at the expense of long-term international stability.

For years, Western policy towards Vladimir Putin has rested on the principle that Russia must pay an economic price for invading Ukraine.

Yet now the American President is prepared to loosen those restrictions to ease the energy crisis and attempt to bring down prices in the US.

The message this sends out is beyond appalling. While Western sanctions have never been watertight, and European countries have permitted exceptions when vital economic interests were at stake, there is a big difference between limited exemptions and the world’s most powerful democracy handing Russia a lifeline. It raises the possibility that the West’s entire strategy towards Ukraine could unravel.

At the same time, Trump continues to espouse extravagant and fantastical claims about his diplomatic achievements. Consider his announcement that there had been an energy ceasefire in the war between Russia and Ukraine, and that both parties had agreed. This was greeted with surprise in Kyiv. Relentless Russian attacks have continued.

The louder the threats and more extravagant the pronouncements, the greater the impression of a man desperately posturing while events slip beyond his control.

Together, these crises cannot be considered separately. Russia’s invasion of Ukraine has disrupted our access to energy supplies from eastern Europe while the confrontation with Iran has threatened supplies from the Persian Gulf. Now the Houthi escalation threatens a crucial commercial route linking Europe to Asia. In effect we are facing a disastrous triple whammy.

While Trump blusters, Britain and France may promise further assistance to Saudi Arabia, but neither possesses the resources required to replace American power, for so long the guarantor of international security and free trade.

And herein lies perhaps the most unsettling prospect of all. It may fall to China, possibly alongside India, to broker an agreement between the Houthis, Iran and Saudi Arabia that removes the threat to international commerce.

Beijing has every reason to want this outcome, with its export economy depending on functioning trade routes. Yet their intervention would be one of the most troubling kind: what might this authoritarian state ask in return?

The erosion of America’s world leadership did not begin with Trump. But under this president it is accelerating at a terrifying pace.

The bitter irony is that the man who promised to make America great again may instead be presiding over its great dismantling as an international superpower.

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Britain, Economic, Government, Iran, Politics, Russia, Saudi Arabia, Society, United States

A winter of global discontent beckons

GLOBAL ECONOMY

Intro: As energy and food prices soar, we face a winter of global discontent facilitated by the West being run by failures of truly historic proportions

Houthi rebel forces have swept down the western coast of Yemen, seizing the strategic Red Sea port of Mokha (long renowned for its global coffee trade) then Dhubab, another port, before taking Perim Island at the mouth of the narrow Bab al-Mandab Strait that connects the southern end of the Red Sea to the Indian Ocean.

Many will say these are far off places of which we know nothing and care even less.

Perhaps. But what has just happened there is about to hit us even harder at the petrol and diesel pumps, the supermarket checkout counter, in monthly mortgage payments, bank loans, and household food and energy bills. Bab al-Mandab is Arabic for “The Gate of Grief” – and grief is what the global economy is in for this winter.

Oil and gas prices have already soared since Donald Trump’s war on Iran resulting in Tehran seizing control of the Strait of Hormuz, a development the President managed somehow not to foresee.

Since then the US Navy has been deployed to wrestle back control, with mixed results.

Before Trump attacked Iran, around 25 per cent of global seaborne oil trade passed through the Strait of Hormuz and 20 per cent of global liquified natural gas (LNG). Oil flows are now less than half of that (perhaps no more than a third) and almost no LNG at all is getting out.

It’s hardly surprising, then, that oil and gas prices have soared. But nothing like the trebling and quadrupling of prices in previous energy crunches: that’s because several workarounds were instigated, none more important than the East-West pipeline from Saudi Arabia’s oil field heartlands to the oil port of Yanbu on the Red Sea.

The Saudis built this 750-mile pipeline in the 1980s, as the Iran-Iraq war was raging, precisely as a contingency for the Strait of Hormuz being shut. This year it became the most important piece of energy infrastructure in the world, its daily capacity of 7 million barrels doing its bit to mitigate the rise in oil prices.

No longer. Which brings us back to the Houthis.

Just as the Islamic Revolutionary Guard Corps (IRGC) threatened all vessels trying to transit the Strait of Hormuz, so the Houthis, Shia insurgents funded and armed by the IRGC, now threaten all shipping attempting to pass through the southern exit of the Red Sea.

The two most crucial maritime chokepoints in the world are now under the thumb of a hardline Iranian regime and a proxy doing its bidding. It would be hard to think of a more disastrous outcome from Trump’s war on Iran. But there’s worse.

As the Houthis pushed south to take control of Bab al-Mandab, the Saudi East-West pipeline came under attack from drones dispatched by Iraqi Shia militia, yet more Iranian proxies.

Even the dim-witted can surely see a pattern here.

The drones took out pumping stations, forcing the Saudis to close the pipeline for at least six weeks for repairs. This has crippled Saudi oil exports in the process, a harbinger of the global spike in oil prices to come.

This week the benchmark Brent crude oil price hit almost $110, the highest since May, before falling back a bit. Aramco, the Saudi national oil giant, told European refineries there would be no deliveries next month. The prices of what’s refined from crude oil – jet fuel, petrol, diesel – are rising fast.

Tehran has, in effect, opened a second front in its war with America, with huge consequences for the global economy – and Trump, still struggling to escape from the first front (which he started), has no idea what to do about it.

The Saudi crown prince, Mohammed bin Salman, has pleaded with the US President for military help to repel the Houthis. Washington will likely be reluctant to assist, mindful that the Houthis survived a massive US bombing campaign, lasting over 50 days and involving 1,000 airstrikes, in the spring of 2025.

The Saudis are certainly in no position to dislodge the Houthis on their own. The group already controls a big chunk of northern Yemen, including the capital, Sanaa, despite previous Saudi military interventions on behalf of the beleaguered Yemeni government.

Now that the Houthis have their foot on the Saudi oil-export windpipe, they are going nowhere fast.

TWO

Sometimes it really doesn’t rain but it pours. The coming global energy crunch will be compounded by the fact that Ukrainian drones have taken out a third of Russian diesel-refining capacity. Russia is now having to import diesel from India, pushing up global prices even further.

Russia is retaliating by sending its drones to hit Ukrainian grain infrastructure and exports going through the Black Sea, seriously hindering the amount of grain getting out from one of the world’s great bread baskets.

It’s a prelude to the soaring food prices to come. Farm machinery is powered by diesel. So that cost is rising. So is the cost of fertiliser. Around 20 per cent of global supply used to come through the Strait of Hormuz. Not now. The upward pressure on food prices will become relentless.

Suddenly we’re looking at the prospect of soaring energy and food prices, as oil and grain markets buckle. A new broad-based inflationary surge is coming down the pike.

The Bloomberg commodity index has already risen by 48 per cent this year. That’s now working its way into consumer prices.

UK inflation is back over 3 per cent – with more rises to come. European gas reserves are at historic lows, with time running out to replenish them for winter. So, gas is about to become much more expensive, too.

OFGEM’s energy price cap is forecast to rise by as much as 25 per cent in January.

We are now moving into a world of higher interest rates. The European Central Bank increased its benchmark rate last week; the US Federal Reserve did the same just days ago. The Bank of England kept its rate on hold. But it’s only a matter of time before it starts raising rates too. Now that inflation is back, it will have no other choice.

We are looking at higher interest rates for as far as the eye can see. The chance of reviving the housing market is non-existent. While all this unfolds, politicians on both sides of the Atlantic debate and promise irrelevancies while ignoring what really matters.

Britain has been consumed by rows over political donations which in the grand scheme of things barely matter a jot, but allow politicians to posture at their hypocritical worst.

America has a President – who’s caused much of the global economy’s turmoil – trying to bribe voters with a $5,000-a-head “dividend”. France has a lame-duck President who talks a lot and does nothing as his country sinks into a fiscal morass.

German Chancellor Friedrich Merz might not survive next week following a series of bad results in elections.

The markets, of course, know exactly what’s happening. Inflation is coming back with a vengeance, the war on Iran is being lost, and the global economy is at the mercy of Islamists bent on our destruction.

It should come as no surprise the bond vigilantes demand ever higher interest rates. A risky world means ever-rising risk premiums.

We face a winter of global discontent with a political leadership missing in action, obsessed with an agenda that means little and is of a self-serving discourse, wholly inadequate to the challenges about to confront us. When the IRGC and the Houthis hold the upper hand, nobody can be in any doubt we’re being run by failures of historic proportions.

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Britain, Business, China, Economic, European Union, Government, International trade, Politics, Society

A ruthless new Chinese plan that is grinding the West down

CHINA

Intro: China is single-mindedly building enough industrial might to supply the world with just about every major manufacturing product it needs

The most important economic story of our time, by far, is seriously under-covered by both the media and our political class which has largely been ignored. Preferring to obsess, debate, and divide over mere fripperies while a clear and present danger gathers momentum to our economy, our prosperity, and our very way of life.

The scale of the threat is now unmistakeable: China is single-mindedly building enough industrial might to supply the world with just about every major manufacturing product it needs.

Beijing has more capacity than it needs to meet the demands of its domestic markets. Yet it is still adding more at a rapid rate – all of it geared to exports.

It is the clear policy of President Xi Jinping to make the rest of the world dependent on Chinese exports, destroying much of Western business in the process.

It is no less than a bid for global economic domination, with all the global political power that would follow – without the necessity of a shot being fired.

And, so far, partly thanks to the entrenched myopia of feckless politicians on both sides of the Atlantic, it’s proceeding apace without hindrance.

What’s new? you might say. Isn’t it apparent that we have already lived through what we now call China Shock 1.0, an era which started about 25 years ago when Beijing was granted access to global markets?

The world was quickly flooded with cheap Chinese products that not only drove down prices but also drove many Western companies out of business and workers out of jobs.

Well, yes reader, we have and, despite all the pain and disruption it caused, there was never much pushback from the West. True, there were losers, from America’s mid-West to the textile towns of northern England, where blue-collar communities suffered.

But undoubtedly there were more winners from the lower prices and our political masters on both sides of the Atlantic thought what China was exporting – clothes, toys, furniture, household appliances – were not the sort of goods advanced economies in the 21st century should be involved in making anyway. So we just grew to live with it. China Shock 1.0 became the status quo.

It’s now being superseded by China Shock 2.0, an even bigger disruption and far more of a threat because it targets the advanced industries in which the West thought its future lay.

TWO

We’re talking the sort of sophisticated, high-end manufacturing of goods such as precision machine tools, robotic arms for assembly lines, electric vehicles (EVs), the new breed of batteries they require and a new generation of pharmaceuticals.

China is long past the stage of contenting itself by creating the capacity to supply its own needs for these products. It’s building enough to supply the world. A pipe dream? Far from it – it’s already happening.

China can already build enough EVs to supply the entire European market. That’s ten million cars a year. It will soon have enough capacity to meet the global demand for EVs – and the batteries that make up so much of their value.

Indeed, such is the size of Chinese capacity in EVs and their batteries, not to mention their competitive edge, there is really no scope for anybody else to enter the market at scale. We are approaching an age in which the vast majority of EVs and nearly all the key components in them will be Chinese.

That’s already true of solar panels. Fifteen years ago, Europe – especially Germany – had a thriving solar panel industry. Then China entered the fray. There is now no European solar panel industry worth talking about. Wind turbines will be next.

Perhaps most concerning of all, China is building up an unbeatable lead in the market for precision machine tools and advanced industrial robotics. That’s what makes the threat of China Shock 2.0 so much more existential than China Shock 1.0. We’re no longer talking about cheap clothes for teenagers or toys for children. We’re talking about the industries of tomorrow.

To understand more clearly what’s happening, let’s go, briefly, to two places.

First, Dongyuan in Guangdong Province, just north of Hong Kong. This town used to be full of factories churning out cheap toys, shoes, clothes, and appliances for Western markets. No longer.

Now it’s a “factory for factories” making high-value capital goods for global industry from machine tools to robotic arms and microchips – exactly the sort of advanced manufacturing Germany and Japan used to dominate.

Now let’s go to Dresden in Germany, home to Volkswagen’s showcase plant known as the Transparent Factory, so called because it was designed with glass walls to let the public watch workers and machines assemble VW’s world-beating cars.

Except there’s no point going there – because car production ceased last December. Reeling from China Shock 2.0, VW is now slashing tens of thousands of jobs in Germany, closing plants and, to cap it all, is opening an export hub in China from which to supply global markets. Just days ago, VW announced that 50,000 workers will lose their jobs. The company’s share price reacted favourably.

The plight of VW is the plight of German industry. Last year, Germany lost 150,000 skilled, well-paid industrial jobs. This year, it’s still losing them at a rate of 10,000 a month.

THREE

Politicians in Baden-Wurttemberg, Germany’s hitherto prosperous manufacturing heartland, now speak openly of it becoming the “Detroit of Europe”. This is a reference to the US city nicknamed “Motown” thanks to its domination of car manufacturing, which saw its population decline from close to two million in the 1950s to just over 600,000 in 2020 as the car giants moved out.

That prospect tells us something else about China Shock 2.0. Whereas the first shock took more of a toll in America, where there was more low-end manufacturing than in Europe, it is advanced manufacturing in Europe that will bear the brunt of the second Chinese wave.

We can date the start of China Shock 2.0 to 2021 when, in the wake of the world’s biggest ever property crash, President Xi decided it was time to move resources out of property and into advanced manufacturing. That was only five years ago. And yet there’s already been an explosion of Chinese exports to Europe.

The European Union runs a trade deficit with China of one billion euros per day. It’s heading for an annual deficit of half a trillion euros next year – twice the pre-Covid deficit. And, even though we’re only in the early days of the shock, it’s already exacting a grim economic toll.

Bankruptcies and insolvencies in the EU are at a ten-year high. European growth is sluggish. Industrial production is actually declining. Germany now imports more sophisticated capital goods from China than it exports to China – Shock 2.0 in action.

America erected trade barriers to China Shock 2.0, including a 100 per cent tariff on Chinese EVs. Other Chinese products face tariffs of around 25 per cent, far higher than European tariffs where, par for the course, the EU has dithered in its response to China. It’s still dithering, making Europe a much softer target.

It’s not as if the EU hasn’t been warned. France’s official planning agency starkly reported earlier this year that, without action, Europe was heading for “industrial devastation”.

Entire chunks of European industry – cars, machine tools, wind turbines – would go the way of European solar panels. “Rapid industrial wipeout in under a decade” beckoned, with 55 per cent of European manufacturing at risk (60 per cent in Germany).

But what of the UK? The good news (in relative terms) is that because we don’t have that much advanced manufacturing we are less exposed than the EU in general and Germany in particular.

The bad news is that we’re governed by politicians who have no idea there is any kind of threat or, if they do, simply ignore it.

In fact, it’s worse than that. Far from even modestly protecting our interests, we’ve reduced tariffs on imports from China to facilitate the Government’s bizarre dash for Net Zero.

As energy secretary, Ed Miliband actually embraced China Shock 2.0 to further his own green goals. We stuck with a standard 10 per cent tariff on cheap Chinese EVs because he wanted people to buy them.

And, not content with making it easy for Chinese EVs, the Government decided to penalise our own carmakers for not selling enough EVs.

In July, British vehicle output was a mere 64,000 units, down 12 per cent on the year. A decade ago we produced 1.5 million vehicles a year.

This year it is expected we won’t produce even half of that. In 2025, we managed under 720,000, down 8 per cent on the year before. Thanks to China Shock 2.0 and our own Government’s folly, we probably will not have a car industry at all in ten years’ time.

As for so-called “green jobs”, we already have precious few of them. Thanks to the Net Zero obsession, our green supply chains for all manner of things – batteries, cathodes, anodes, solar/wind turbine components, critical minerals – are already China-dominated.

Had we taken our time, we could have fostered more domestic suppliers. Instead, the Government decided to embrace cheap Chinese green tech to meet its artificial climate targets, which have taken precedence over everything else.

There is no coming back from this. We have favoured China and sacrificed any hope of a new industrial base, while jeopardising our security. So much for industrial policy, despite rampant talk of it in Labour circles. Not so in China, where industrial policy is paramount. The scale of the commitment is breathtaking – even frightening. There was a time when Chinese industrial policy was confined to backing a few favoured sectors.

No longer. The whole might of Chinese Communism – state-owned banks, state-owned companies, local government – has been mobilised in pursuit of what’s being called “the industrial policy of everything”. China’s economic growth, which secures the continued dominance of the Communist Party, is increasingly dependent on exports.

China’s currency, the yuan, is manipulated down against other currencies to make these exports even more competitive – and to make goods that China imports more expensive.

There you have another key feature of China’s second shock: it isn’t just the biggest export drive the world has ever seen, it’s a strategy to reduce China’s dependence on imports. Investment has been showered on those parts of advanced manufacturing which Beijing perceives to be over-dependent on imports.

Replace imports with homegrown production, keep the currency cheap to favour exports and, voila, you have a modern mercantilism – an ancient economic doctrine which promotes exports above all else and which fell out of favour years ago.

President Xi has revived it and combined it with autarky, a policy of national self-sufficiency. Those who think we can live with China Shock 2.0 because China’s massive domestic market will still be open to our exporters really have no idea what they’re talking about.

First, it was never open in the first place. Second, the shutters are coming down. Third, President Xi thinks autarky works.

FOUR

China now runs a traded goods surplus of $1.2 trillion (£900 million) with the rest of the world, with bigger surpluses to come. Xi isn’t doing this just because he can. He’s doing it because with economic dominance comes global political power.

When you dominate global trade the way China envisages, you dominate global supply chains. Just as America has projected its power and influence through its effective control of the global financial system so China aims to do the same through its control of global supply chains.

It’s already flexed its muscles. Japan learned how vulnerable it was to Chinese supply chains when it recently had the temerity to stand up for Taiwan.

The EU fears retaliation if it takes a tough line against China. Even America has backed off confronting China on trade. Say hello to the shape of things to come.

We are in no position to deal with it. The EU is rudderless. America is run by a President who prefers to pick fights with allies rather than build the united front needed to confront China Shock 2.0. Our own political leadership could not be less equipped to rise to the challenge.

By the time they grasp the implications of 2.0, we’ll be on to China Shock 3.0. It’s already stacking up. This won’t involve Chinese exports of EVs or robotic arms. Not a single container ship will be involved.

It will be the export of the operating system itself. Chinese-built AI models embedded in the software running Western factories, Chinese-standard batteries and chips wired into the next generation of Western infrastructure and EVs. Chinese firms setting the technical rules the rest of us will have to follow because, by then, there will be no alternative supplier left standing.

Beijing will own the plumbing of the modern global economy. Domestic politicians in the West will be left talking about issues that have little or no significance.

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