A few thoughts on a President thumbing his nose at the world .......

Friday 2nd June 2017

A few thoughts on a President thumbing his nose at the world .......

ref :- "The flaws in Donald Trump's decision to pull out of the Paris accord" , The Economist Online 

The first reaction down our neck of the woods to news of Mr Trump's decision to pull the US out of the Paris accord was :"Yes, but what does that actually mean ? What effect will it have? ".  A perfectly reasonable question, and as it turns out not a straightforward one. Most people would say that to judge the move in merely market terms is not only in poor taste but misses the much more important point about the welfare of our planet entirely. They'd be right of course .... but since that's why we're here we'll just say in passing that most markets are unfazed by the development and are much more interested in this afternoon's US employment data. If that sounds narrow-minded and even callous .... well, that's markets for you.

Apart from Oil, that is ..... crude oil was already on the defensive despite a much bigger-than-expected drawdown in US inventories announced yesterday, largely because production and export numbers were also up. The news from the White House merely exacerbated the situation by suggesting the possibility of a free-for-all in new drilling in the States. At one stage, crude was almost 3% lower.

Looking at things more broadly, we probably shouldn't be surprised by Mr Trump's call ..... after all, it was part of his election manifesto. If you're cynical enough to suggest that it's hardly been guaranteed that the President's words as a candidate will be put into action up to this point, then his selection of Scott Pruitt as boss of the Environmental Protection Agency back in January should have offered some confirmation of which way the President would jump on this issue. Mr Pruitt is a bold and passionate proponent of the theory that of all the contributory factors towards climate change, human activity is well down the list.

But predictable or not, it's hard to see how this decision will work out well for Mr Trump or America and its people  --  even those who are supporting withdrawal. Most of his advisers argued against it, as did most large US corporates and two-thirds of the population (according to polls). The President's claim that his motivation is to reinvigorate the fortunes of America's coal mining industry and of course of its miners, the very kind of people that got him elected, is disingenuous at best and probably just plain wrong. 

The main problem for coal is that it is being replaced as a source of energy by cheap and plentiful natural gas, and not that strictures from the Paris accord are strangling the industry. In fact, the US are far enough down the road of cutting emissions that they could probably find the balance of emission cuts elsewhere, stay within the accord and successfully dismantle the curbs on burning coal  --  if they had really wanted to. The argument that Mr Trump has made his decision to safeguard American jobs is even more flawed. Even if miners' jobs are protected by the move (for a while)  --  which as we say is far from certain  --  the renewable power industries (particular solar and wind) employ far more people. Some of those will feel distinctly threatened by the President's backing for coal. 

It's in the field of international affairs that most damage is being done. In time, this could prove highly important for world markets although it's impossible to foresee exactly how things will pan out at this stage. Hot on the heels of his disastrous European visit, the man in the position we used to call "Leader of the Free World" has just taken a further lurch into isolationism. Perhaps that's a little unfair ..... the media is already gleefully pointing out that the US is not alone in their position. They "stand shoulder to shoulder" with ....er, Syria and Nicaragua. It's only all other countries that that will stick to the Paris treaty.

One could laugh, but in quick succession Mr Trump has fallen out with Angela Merkel ("Germany ... very bad"), President Macron (the white-knuckle handshake), the entire EU, NATO ("pay your dues"  --  he's right on that one but not to query the principle of collective defence) , and even poor Prime Minister Markovic of Montenegro (brushed aside like a piece of flotsam). He has reneged on the Trans Pacific Pact (TPP) and wants to significantly modify NAFTA (North American Free Trade Agreement) in the US' favour. The serious point on an economic level is that at some point, the US will need the cooperation of its allies and trading partners in the face of some as yet unforeseen economic or market  threat . At this rate, he may not find those allies so keen to play ball ..... even if UK Prime Minister Theresa May's less-than-damning reaction to events betrays her overwhelming desire for a post-Brexit trade deal with the US. 

And crucially on the global diplomatic scene, is Trump creating a void for others to fill .... China for instance, or even Russia ? That kind of development would have severe ramifications on every front.

It's hard to tell if they are genuinely-held theories or just manifestations of liberal spleens being vented, but things have got to such a pass that it's being suggested in some quarters that Mr Trump may have taken the decision he did for baser, more personal reasons despite the pleadings of Merkel, Macron and others. Could he have done so because he sensed the dislike and disdain that the European leaders felt for him ? Or was he wanting to divert attention from the scandals surrounding the White House ?

The very suggestion that the President of the United States might withdraw from one of the most celebrated international agreements of recent times for such a reason or reasons is certainly outrageous in normal circumstances, but such has been his attitude to diplomacy and policy-making up till now that many find that scenario more than credible. Time is running out for his more rounded advisers to get the President onto the straight and narrow ..... and to get back to markets for a second, the longer they leave it then the less likely it is that Mr Trump's intended economic measures, some of which have genuine merit, will ever come to fruition.