Daberiam, Second Series, No. 5

Since my thoughts at the beginning of February, which followed a few intensive days in
Washington DC, nothing has happened to change my view of Trump. He is, however,
proving, as predicted, to be unable to distinguish between the trivial and the important. His
fight with the Supreme Court has not gone away. His attacks on the press have not reduced
and his defeat in Congress on the rushed and rather ill-thought-out reforms to Obamacare
increase the chances of a government becoming paralysed by trench warfare between the
President and Capitol Hill. If Trump can resist getting into more skirmishes and actually
focus on tax reform, coupled with even a small amount of infrastructure expenditure, then the
prospects are very good for the US economy – but it is a big ‘if’!

The economic improvements that are gradually taking place in spite of everything, both in the
US and in Europe, are encouraging. Subdued “animal spirits” are building and the pick-up in
trade is steady. Even the sales of infrastructure machinery, such as Caterpillar, are picking up
along with the train freight loading, all signs of the famous ‘green shoots’. While there is
some unpredictability, a late Spring frost, such as a bigger than predicted uptick in inflation,
or political upsets in the European election round, the chances are we are in a period of low
but steady economic improvement.

In the short term, the triggering of Article 50 is likely to reduce the coverage given to
politicians, bureaucrats and pundits in general. The lack of real news in the disengagement
process has created far too much coverage from political posturing by bureaucrats and
pundits of one kind or another, most of whom are not and will not be involved in the
negotiations, this should cease when the machinery cranks into action. There will certainly
have to be some complicated discussion as to how negotiations are really going to take place
– who sits opposite who, and the shape of the table will be the initial problem! Things that
should have been sorted out long before now but which Juncker and Barnier, at least publicly,
have refused to discuss. Both of them have exhibited completely inconsistent positions; on
the one hand we won’t talk about talks until they start, and comments like “no cherry
picking” but on the other hand “we want an early deal on Britain’s exit bill before the rest of
the negotiations”. This means that the chances of a deal being worked out in two years is
slim. The second hurdle to the whole process is “the deal” will have to be put to the 27 States
to agree. Again, a highly unlikely possibility, bearing in mind it took seven years to negotiate
a very simple trade agreement with Canada.

At this stage, Mrs May’s stance that, no deal is better than a bad deal, is the only position she
sensibly can take. After a lot of smoke and fury and political posturing by Brussels, as it tries
to square the many circles of its relationship with the 27 members, commercial reality will
inevitably cut through the smoke and confusion. European industry and financial institutions
will start to lean seriously on their respective governments to produce what will have to be
called an interim agreement, this will avoid the necessity of coming to a final agreement that
would have to be put to the member states.

The greatest danger to the British and European economy will be from a breakdown at the
ports and airports, where the bureaucracy of the customs organisations could glue up the
whole system. It is the bureaucracy that is to be feared most, government organisations that
live in a world of their own, implementing the tens of thousands of “rules” invented by
politicians to satisfy the many single interest groups that make up the political landscape.

Fear of the unknown is the primary argument of the Remain lobby and, unfortunately, there is
an incentive for the Remainers to derail the system if they can, to prove their own case. The
future is always unknown and there is always a tendency to create rules and regulations in the
hope that the blanket of bureaucracy that goes with them can protect one against an uncertain
future. In a world where change is the only constant, the security blanket of ever more
bureaucratic institutions (Brussels?) gives a false and temporary sense of security, which
prevents the flexing of the economic world to adjust to continuous change; leading to the
kind of political upheaval that we are seeing in Europe; Brexit being just one symptom.
Britain is lucky to have a Prime Minister who is competent, clear headed and hardworking,
and who shows no sign of her predecessor’s urge to be constantly twittering and looking for
popularity. So far she has steered a steady course in spite of every attempt by her colleagues
in the institutions of government to derail and confuse an already over-complex process.

One of the most interesting elephants in the room at the moment is the quiet revolution going
on in Asia, led by China. This autumn we will see laid out President Xi’s vision for the next
five years. Probably the only country with a seriously competent leader who has experienced
all walks of life and who has the determination and the vision, backed by a competent and
well educated cabinet, to bring prosperity to their country. Leaving aside the longer term
philosophical arguments about systems of government, it is a relief to see the one major
country that is intent on improving the lot of its people and bringing stability to its region of
the world. But this is a subject for another time.

When the dust settles several years out, the noise and fury of the current moment will be
forgotten and the probability is that things will be better generally than they are today.

Damon de Laszlo
28th March 2017