Chris Johns: Time has come to prepare for economic war

Trump’s policies mean more Irish growth must come from Irish businesses

Donald Trump has been consistent about his promise to start a trade war. Photograph: Reuters

Donald Trump has been consistent about his promise to start a trade war. Photograph: Reuters

 

History teaches that the path to war is a well trodden one. Like a drunk leaving the pub to get home, that journey can be wobbly and is different each time, but the destination is, sooner or later, always somehow reached.

Steve Bannon, consigliere to the Trump administration, is on record as forecasting a US-China military confrontation. Donald Trump has so far surprised everyone by doing exactly what he promised to do, so we can maybe draw a crumb of comfort from the fact that he is yet to echo his adviser-in-chief’s remarks (tweeted suggestions of an invasion of Mexico were apparently not to be taken seriously).

If an old-fashioned war is still odds against, the chances of a different kind of bust-up are all too apparent. One of the many things that Trump has been consistent about is his promise to start a trade war. Initially that ambition was aimed at China and Mexico, but more recently Germany has been targeted.

Trump clearly believes that the last 70 years have seen a build-up of international trading and security arrangements that have left the US short-changed by just about every country in the world.

He has even managed to pick a telephone spat with the Australian prime minister, leader of arguably an even stronger US ally than the UK – unlike the Brits, the Aussies have fought alongside the US in every conflict of the past century. It is a fratricidal argument, and, along with Trump’s evident willingness to use any means to further his vaulting ambition, has inevitably been dubbed “a Game of Phones”. Anybody who watched the “battle of the bastards” towards the end of the last series of Game of Thrones will hope the comparison remains a fictional one.

1930s Germany

Boris Johnson

Back then mainstream politicians, media and analysts in Germany were forever commenting on how surprised they were that Hitler implemented all the things he promised to do in earlier speeches and writings. They were wrong not to take him both seriously and literally. Today the Daily Mail is urging everybody to “calm down”: exactly the same sentiments were expressed before the second World War. Not least by most of the British press and the then government.

The EU and the word “crisis” usually go together. All of the old favourites are still there. Greece could blow up again at any moment. The Italian economy is now smaller, on a per capita basis, than it was 20 years ago – even Greece has done better than that.

Any one of three imminent elections in the Netherlands, France and Germany could prove to be existential, not just for the euro but the EU itself.

Even if the EU gets through all of those plebiscites unscathed, there will then (possibly sooner) be Italian elections. As we were reminded by Deutsche Bank this week, Europe’s banks, not unrelatedly, are still in trouble.

And now Trump has declared himself an enemy of the EU: he applauds Brexit and thinks other countries will inevitably follow suit. He has put Germany on the same list as China, whom he accuses of being currency manipulators.

The UK may find it difficult to attract the EU’s focus that is needed during Brexit negotiations. It is likely that we will see behaviour consistent with the needs of a neurotic, attention-seeking child being left unmet. One of the many tragedies of Brexit is that the UK couldn’t have chosen a worse time to kick the whole thing off.

Protection

But it seems reasonable to assume that large change is coming of one form or another. A global recession/slowdown inspired by a trade war is the obvious risk. But there are plenty of others.

For instance, Europe may be forced by the US to take a more active role in its own security. That will reawaken a very old idea: a military dimension to the EU, something that was envisaged when the original six countries came together in the 1950s. Europe became mostly about economics and a single currency; that’s not how it was originally planned. How would neutral Ireland deal with a resurrection of the idea of a European army?

If ever there was a time to conclude that the quintessential European response to anything – “muddling through” – isn’t going to work, well, that time is now. Big changes to the EU look inevitable.

If ever there was a time for us to buy protection it is now. If we don’t we should admit that we never will and stop pretending to make the effort.

The risks of the future not looking like the past are as high as I can recall. The list of things we can do is, of course, limited, and in many ways drearily familiar.

War footing

Stop pretending that we want to help SMEs and actually create an environment that allows them to flourish.

The risks to the multinational sector are plain: future jobs growth has to come more from indigenous businesses. The US corporate tax regime will, if Trump and Congress deliver on their promises, soon look very like our own. We have asserted for years that overseas businesses don’t just invest here because of tax: we could be about to find out how true that claim actually is.

Most of all, be aware that stuff is going to happen that we cannot foresee. Maybe it’s war of one kind or another. Maybe a collapse in inward investment and/or exports to the UK. Unionists might vote with their heads rather than their hearts and see a better economic future in a united Ireland. Or something even more unimaginable.

We need to be as prepared as we can.

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