The patterns of global trade are moving into a new era, except that they look like a re-run of a terrible past.
It’s not so much a concern about the rise of isolationist nation states – ones that put protectionist trade policies before the world’s economic health. The fear must be that trade reverts to the 19th-century rulebook that rewarded the countries with the most muscle and bargaining power.
Donald Trump is an obvious symbol of this shift. The US president’s policies promote trade that ignores or bypasses the rules of fair play established following the second world war. Instead, trade becomes a tool of the richest and most powerful nations.
His determination to drive a hard bargain with Canada and Mexico in talks about a revised Nafta free trade deal was one of the first signs. His aim is to elevate the US above its neighbours, which are no longer seen as partners, but rivals.
This new approach emanates from his America First agenda, which is expected to come to the fore in the new year now his domestic tax bill has bludgeoned its way through Congress.
India’s prime minister, Narendra Modi, is another leader who puts his country’s self-interest above the development of a fairer system of trade. Modi, like President Xi Jinping of China, has argued that he has little choice but to play tough when he needs to raise millions of people out of poverty every year. Without firm control on which foreign companies are permitted access to their markets, how can they maintain political stability?
In the same vein, China’s re-invention of the Silk Road, through Asia and the Middle East to Europe, harks back to a time when the world’s largest economies used their buying power to amass disproportionate gains from trade.
Brexit is undoubtedly a manifestation of this trend. Many of those who support leaving the European Union’s single market and customs union believe the UK will enjoy greater leverage in its dealings with the rest of the world as a result.
They point to the UK’s relationships with the Middle East, Latin America and those parts of eastern Europe beyond the EU’s boundaries as examples of thriving economies ripe to be exploited by British exporters.
The UK trade minister, Liam Fox, was in Argentina at the World Trade Organisation’s latest gathering. It finished on 13 December, having made, by most accounts, little progress in widening the boundaries of fair trade.
Fox talks about maintaining the WTO’s rules and possibly relying on them to make sure Britain gains access to new markets. Most of his efforts, though, are focused on preparing the ground for bilateral deals with individual countries in the hope that what the UK has to sell – in its sophistication and competitive price – will entice them to offer favourable terms.
This is a dog-eat-dog world in which only those countries with the leverage of large populations and something precious to sell will thrive. And it is a gamble when Fox says that the UK services industry (much of it foreign-owned), and its manufacturers (many of them run from the US and Germany) will outdo their rivals and bring profit to the UK.
Maybe they will repatriate the gains if the corporation tax rate is low enough. Maybe they will stay headquartered in the UK if the authorities turn a blind eye to the financial inducements sometimes necessary to win trade deals.
Corruption is certainly an acute problem in some of the countries that Fox mentions he wants to deal with, especially when the UK has lost the leverage offered by EU membership.
The EU is an economic fortress that imposes its fair share of restrictive practices. But EU members are the most likely to maintain an ethical path in trading activities the return to 19th-century practices.
Electric cars are starting to fuel real debate about generating tax
Electric cars may account for a drop in the oily ocean of the world’s combustion-engine-powered fleet, but the speed of their take-up is a match for the breathtaking acceleration of a Tesla.
Five years ago, a little more than 100,000 electric cars were sold worldwide annually. Fast forward to this year and more than 1 million were sold, taking the cumulative total whizzing past the milestone of 3 million globally.
If 2017 was the year when the planet woke up to electric cars, with major manufacturers vying to outdo each other with their ambitions and governments pledging to phase out petrol and diesel cars, 2018 will be the year they begin to shake the world.
Oil companies have already been reassuring investors that electric cars won’t eat their lunch. The new year will see them reiterating their case, against a backdrop of rising oil prices that are good news for their short-term profits – but could be bad news in the long term as they make electric cars look more attractive.
In the UK, the pressure that electric cars are putting on power grids will begin to emerge as an issue. While energy network firms say they haven’t yet been troubled by hotspots of battery-powered cars charging simultaneously, they are expecting such clusters to emerge soon in affluent areas.
One energy boss warned last week that some drivers should pay extra if they want to charge up at peak times, putting extra stress on networks. On the flipside, 2018 will see the start of innovative trials where households with electric cars return power to the grid, too.
The market share being taken by electric cars – expected to be 40% in countries such as Norway next year – also heralds vital debates around taxation. Fuel duty from petrol and diesel earned the Treasury £27.6bn in 2015-16, three times as much as tobacco duties.
So a real public discussion needs to start on what comes next as those revenues decline. Road pricing, perhaps? Unsurprisingly, the government seems increasingly amenable to that idea.
Don’t feel sorry for Goldman – tax reform is a big bonus
Has everyone got their tiny gold-plated violins at the ready? Good, because investment banking giant Goldman Sachs – famed for its extravagant bonuses and ruthless deal-making acumen – says its fourth-quarter profits will take a $5bn hit as a result of president Donald Trump’s tax reforms.
The one-off charge is largely down to a change in the way that overseas earnings of US firms are taxed. But anyone cheering the prospect of an increased tax contribution from Wall Street shouldn’t pop the cork on their magnum of Krug just yet.
In the long term, banks are expected to be among the biggest beneficiaries from Trump’s overhaul, announced just before Christmas, which will significantly reduce rates of tax on US corporations.
Undoubtedly, Goldman and its Wall Street neighbours will be grateful to two of the key architects of the reforms in the Trump administration – the bank’s former executives Steven Mnuchin and Gary Cohn.
Now that’s what you call a happy new year.