A new economic order is emerging. what does it mean for politics?

Jonathan Edwards

I must confess to readers that I am a late convert to podcast listening, but as often happens to individuals who suddenly embrace something new, they become a true believer.

I hardly ever watch news programmes these days unless something big is happening as during the day scrolling through my social media channels I pick up on events. What I really desire is analysis and commentary.

My personal two favourite podcasts are the Newsagents, which is mind-blowingly good. The other is by Irish economist David McWilliams. McWilliams’ last two podcasts have been based on an interview with Russell Napier, a macro-economic expert. Napier argues that the election of Trump will speed up the creation of a new global economic age with far reaching consequences.

His analysis is that a Trump presidency will speed up the demise of the international monetary system that has ruled the global economic order for the last three decades or so and herald a new age of national capitalism.

This is inevitably going to have far reaching political consequences.

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Boom

What Napier is arguing is that the economic age we are about to leave was based on an arrangement between emerging economies such as China and the West. China in pegging their currency at a level below the dollar has enabled a boom in the export of manufacturing goods.

This has had several consequences. Firstly, consumer goods have been far cheaper than they otherwise would be in the developed world. Effectively China has been exporting deflation to the West.

Secondly, unable to compete with cheaper exports, manufacturing capacity in the West has collapsed. Thirdly, developing countries have used the revenues generated by the sale of their exports to purchase government bonds in the West. China owns nearly £800bn worth of US Federal bonds.

As it happens the UK has an unusually large amount of US Treasury Securities at $710bn, far more than other European countries.

In the UK around a third of government debt is held by foreign actors, double the level of 20 years ago.

The flood of foreign money has indirectly kept Central Bank interest rates in the West lower than what they would otherwise have been during this period. The impact of this has been to encourage domestic speculative behaviour, aided by policies such as quantitative easing.

This has boosted the value of assets such as houses, thus creating the deep social divides that exist in countries such as the US and the UK.

The consequence of this is the age of populism we are currently experiencing.

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Trade war

Trump's answer to this has been to threaten a trade war by introducing tariffs of 25% on goods from Canada and Mexico with an additional rate of 10% on China and repatriating manufacturing capacity.

This plan is likely to be expanded to impact on European countries as well, including the UK. The inevitable consequence of this will be a global trade war as countries retaliate.

We can have a long debate about ulterior motives, but the reality is that Trump's populism has succeeded as he has identified a plan that those left behind in the economic order can identify with. Whether it will work or not is largely irrelevant.

Progressives have been left defending the status quo. The same can be said to have happened during the Brexit debate.

Keir Starmer’s “tepid bath of managed decline” attack on the civil service last week when launching the UK Government's revised missions should be seen in this context, though personally I am not convinced that the Prime Minister is the best person to ride a wave of rage.

Quite frankly it wasn’t the cleverest attack to make when announcing a government reset as it overshadowed the substance of what he was saying.

If anyone can name all the new milestones without looking them up on Google, send me an email and I’ll post you an early Christmas gift.

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Credit war

While Trump has a prognosis, his diagnosis however may have some unintended consequences. A trade war according to Napier could have two sides to its coin, unleashing a global credit war.

Heavily indebted countries to foreign actors such as the US and the UK would be most exposed, which makes me wonder whether the incoming US administration has really thought through its economic policy.

With the demise of the international monetary order that has underpinned the global economy for a generation to be replaced by a new era of national capitalism, what will all this mean?

For one, interest rates will most certainly rise in economies such as the US and UK as inflationary pressures increase across the board. This should dampen speculative behaviour. Countries are also likely to mandate investment in their own economies by financial institutions as opposed to purchasing foreign debt.

The Chancellor’s pension review could be viewed as one example of this. (I am glad to report that my sources inform me that the dedicated Welsh scheme is safe).

If progressives want to defeat populism, they must understand the transition before us in the way the global economy works, and the opportunities and dangers of what comes next.

Jonathan Edwards was the MP for Carmarthen East & Dinefwr from 2010 until 2024