The American government is close to hitting its debt ceiling. And getting the budget approved by congress is set to be a struggle too.
Both of these could lead to trouble. Perhaps even default. The American Treasury secretary is already authorised to use “extraordinary measures” to scrape up cash.
I know what you’re thinking. This is an age-old problem that never actually plays out. There’s always a last-minute compromise. And you’re right.
But Donald Trump isn’t your average politician. He sees politicians and government as the problem. And that means he doesn’t fear what financial markets fear most – trouble in the Treasury market.
In May, Trump argued that a government shutdown would be just what the country needs. On Twitter, of course. But he’s been persuaded to compromise each time the deadlines loomed since. That’s unlikely to continue unless he gets a hurricane in December or starts a war with North Korea.
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On 8 December, the US government hits its budget deadline. On 1 March, it hits the debt ceiling. Both negotiations look like they’re in deadlock.
If Treasury bond yields go haywire as those deadlines approach, everything else in financial markets will too.
Bombarding free trade with the rules
Who would’ve thought that a Canadian state government’s subsidy of an airline manufacturer would cause a trade rift between the US and UK?
The US government has announced a 219% tariff on a particular line of Canadian Bombardier jets at the request of Boeing. The wings and fuselage are made in Belfast, putting thousands of jobs at risk.
Liberal Democrat leader Vince Cable said: “Do we really believe the US will save us from Brexit with a comprehensive trade deal, when this is how they deal with fair and free international competition?”
But wait a minute. Are subsidies fair and free international competition?
The UK government also funds Bombardier’s manufacturing with more than £100 million. And this is hardly new, according to the Fraser Institute:
Bombardier’s corporate welfare began, at least federally, in 1966 when it received its first disbursement of $35 million from the federal department, Industry Canada. In the decades since, various Bombardier iterations received over $1.1 billion (all figures adjusted for inflation) in 48 separate disbursements from just Industry Canada. That includes two 2009 cheques worth $233 million.
It’s no wonder the Americans are grumpy. Their allies are funding a rival company to Boeing and then whining about free trade…
The tariff is also in line with Boeing’s decade-long pursuit of Airbus’ illegal subsidies at the World Trade Organization. If international bodies won’t level the playing field, Trump will.
This must be the sort of thing Donald Trump rages against when he says “fair trade”. Perhaps he demands an end to subsidy practices if we’re going to make a pitch for trade with the US. “Even our closest allies must play by the rules,” said US commerce secretary Wilbur Ross.
British Remain politicians are circling like vultures. They see this as a failure of post-Brexit trade negotiations.
It’s not; it’s the opening of those negotiations, Trump style.
Until next time,
Nick Hubble,
Capital & Conflict
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Category: Geopolitics