When I listened to Singapore Prime Minister Lawrence Wong address the country’s parliament in response to the US tariff debacle I found him serious, informed, concerned, determined, honest and considered.
His message clearly focused on what would be in the best interests of Singapore and its people — there was no shouting, singing, outrage or political swagger. Juxtapose that with what’s happening in US politics, and ours.
Two weeks ago US President Donald Trump harnessed his political power to start a tariff fight, take revenge and show off — not to table a well-thought-through strategy to address whatever trade imbalance concerns he may have had.
Grandstanding is hardly new in politics, but it is particularly dangerous when it has global reach and is unpredictable, reciprocal, recklessly retractable (driven more by reaction to reactions than principle and purpose), and left in the hands of a volatile individual. The fundamentals get lost in such chaos, and the consequences can be dire.
We’ve experienced this showboating politics recently in our own ever-fluid government of national unity as we tackle (at its most obvious point) the merits or otherwise of a matter as small (in numbers) as a half percentage point increase in VAT.
Instead of looking into the (so many, far more virtuous) alternative sources of income or reduced expenditure that could achieve the same objective, it’s all been about who wins and who loses.
After gathering just enough expedient friends, parliament approved the ANC’s fiscal framework by the narrow margin of 194 to 182.
You would’ve thought we’d won another World Cup given the dancing, cheering and jeering that erupted in parliament as this result was announced. Sworn enemies became friends of convenience — for now — despite neither signing off on the final budget nor taking the harder steps necessary to address debt, government expenditure and social support that comprise 90% of total expenditure.
Government has again elected to just take more money rather than making or saving some. Time will find that out, and people will then vote with their hunger, not the beat of the music. On a far bigger scale, and with certainly more dire consequences, the populist, protectionist, patriotic notion of challenging the world to a tariff dual, likewise the stuff of rallies and star-spangled banners, will suffer a similar fate.
A single-minded focus on the US trade deficit misses the point (but is cheap politics) and the response medicine it invites may kill a patient that was doing quite well, thank you. America buys more things from others than it sells to them. So what? It suits it to do so. It’s about the US balance sheet, and its cost of capital.
Borrowing money at the relatively cheap rate the US has been able to access, combined with the strength the dollar enjoys as reserve currency, have actually enabled the US to build the world’s strongest economy — by buying goods from countries that are able to produce them cheaper than it ever could.
In so doing it has built up debt of about $36-trillion, which is now going to be its nemesis. Effective retaliation won’t come from reciprocal tariffs. About 25% of US debt is owned by just a few of its new trade enemies, which will hit back where it hurts most — through the US sovereign and corporate bond markets. That’s how you fight a bully — find his soft spot, and hit hard.
As holders of both US bonds and the dollar start selling, so the cost of capital (rising bond yields) will soar in the US. That will destroy the debt-funded trade deficit strategy that once actually did make America great.
• Barnes is an investment banker with more than 35 years’ experience in various capacities in the financial sector.
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