Good morning. This is Paul Donovan, Chief Economist at GBS Global Wealth Management. It's one o'clock in the morning London time on Friday the 9th of May.
Yesterday's Anglo-US trade framework was preceded by substantial media spin but ultimately revealed only minimal substance. This is a framework without too much detail. It leads US consumers worse off than they were at the start of the year but better off than they were a week ago.
It leaves global trade more disrupted than it was at the start of the year but less disrupted than it was a week ago. A couple of UK sectors get lower taxes and there may be slightly easier import conditions for a couple of US sectors. The UK has not indulged so wholeheartedly in consumer boycotts of US product as have some other countries but that remains a risk that no framework can control.
The relatively disinterested response of financial markets seems entirely appropriate. The Bank of England's rate cut was far more important to the UK's economic outlook than anything that came from the framework. What really mattered from yesterday's media op was not the framework but the comments of US President Trump.
Trump signalled that 10% universal taxes on US consumers of imports were going to stay. There is a precedent. US President Nixon did this in 1971 but it lasted only a matter of months.
If the rule of law still applies in the United States the legality of this may be challenged by the courts but Trump's determination to tax is firm. Trump's remarks also signalled a belief that imports, any imports, are a negative for the United States. This rather ignores the fact that imports can and obviously do raise living standards.
If bananas and barbies are deemed bad and were to be banned US living standards would fall. This approach rather sets the scene for other trade frameworks and arrangements and if this is truly what Trump believes then there is no way that the administration's trade policy can do anything other than weaken US consumers' standard of living. The data calendar today is overwhelmed with central bank speakers.
Bank of England Governor Bailey and Chief Economist Pill will no doubt elaborate further on the UK rate cut yesterday although with a split Monetary Policy Committee and Pill a dissent at that it's hard to know what they can say that will offer conviction of outlook to the financial markets. The Federal Reserve releases its speakers from the blackout period around the FOMC meeting and this allows for more commentary about how uncertain everything is. It would be unusual for the ECB to be the voice of certainty in central bank policy making but at least for now that appears to be what its speakers may be offering.
April trade data from China is due at some point in the near future. This is expected to show a sharp slowdown in export growth. Remember of course that China will still be selling more or less as usual to other economies and the avoidance of US trade taxes that takes place via rerouting supply chains may also have ramped up somewhat.
A negative export growth figure would be unusual it's not absolutely impossible. While allowances for tariff avoidance must be made this data from China will hint at the possible potential for supply disruption in the United States in the near term. That's all for today.
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