By Richard Phillips*
The summer of 2019 seemed to be the best of times. But lurking just beneath its sunny days lurked the worst of times.
In general, people in the United States and elsewhere continued to feel good about the economy through the summer. Polls taken at the end of summer indicated that six in ten Americans thought the US economy was in good shape.
In fact, those working in fields one step removed from understanding the ins and outs of the global economy felt great about it.
Sure, more and more people were growing envious — angry even — watching the rich get richer and the poor get poorer. But for many Americans, their tax-advantaged 401k retirement accounts were holding up nicely.
Despite all the naysayers, everyone seemed to be making money, even though they weren’t making quite as much money as they would have liked.
Summer in the America of 2019 also seemed to wipe away concerns about mounting credit card debt, inadequate retirement savings and hope-devouring levels of student loans.
Summer even wiped away the concerns about a malfunctioning health care system and the desperate need for an infrastructure upgrade. It even managed to push into the background as too abstract worries about ballooning U.S. budget deficits and debt levels.
Baseball and bbq
As is generally the case in America, the summer of ’19 was more about the national pastimes — baseball, cook-outs, summer radio and beach outings — than it was about dealing with reality.
Amidst all this, as a capstone to the placid ambiance of summer, a G-7 summit was held in Biarritz, on France’s southwestern Atlantic shore, when that city literally glittered in seasonal perfection.
All in all, the summer in 2019 was a perfect diversion to obscure the events that were soon to come.
It was only toward the end of the summer, when the stock markets globally engaged in near-schizophrenic bouts of volatility that people started paying real attention to the escalations taking place in the U.S.-China trade war.
Even then, people were still prepared to pass the evolving trade war off as a momentary blip, somehow believing that a full-blown trade war was somehow out of the question. Everybody clearly preferred to cling to business as usual.
In those weeks at the end of the summer of 2019, a quietly reassuring concept was bandied about among economically astute conservatives. It held that the “blowhard” American President was just pumping himself up for effect, before he would back down. That way, the canoe called “world trade” would not go over the waterfall.
This assurance also provided enough comfort to economically astute progressives, who also happened to have a personal material interest in the outcome of this question.
Corrosion vs. self-hypnosis
But that view ignored the corrosive influence of changing the direction of a trade agenda that had been set in place in 1948 and had been pursued relentlessly until January 2017.
Right or wrong, undoing trade policy — and all of the market-driven tendrils of free trade that come with it — proved highly problematic in the months to follow.
Willful ignorance prevails
But during the summer of 2019, global economic interdependencies were ignored, the importance of multinational supply chains were minimized and the impacts on currency and other financial markets were brushed aside in a style worthy of Marie Antionette.
There was nary a mention of the Smoot-Hawley Act of 1928, which had raised tariffs on foreign goods and was widely regarded since the early 1950s as having been a key contributor to the ensuing “Great Depression.”
Standing up to China
The reason for that temporary bliss was that many Americans felt good that the United States was finally standing up to China. Its long-term abuses of free trade, including intellectual property theft and currency manipulation, were accepted as the key reasons for its gigantic trade surpluses.
Amidst all this, what was largely forgotten as people took sides in the trade debate, was that the principal cause of China’s economic rise in the world had been its massive pool of cheap labor. This had been the key ingredient which underpinned its ascendency as a manufacturing colossus.
Consequently, it was not understood that higher prices for manufactured goods, including everyday items, would suck money out of the U.S. services sector, in particular hospitality. That higher costs of goods resulted in less consumption, which in turn led to an attendant decline in overall economic output.
A geopolitical void
To make matters worse, during the summer of 2019, the United States of America formally abdicated its leadership role on the world stage.
Instead of fulfilling its customary role of determinedly pointing toward a bright north star and inviting other countries to come along in pursuit of it, the United States resorted to a far more-earthly transaction-driven approach of chasing one deal after another, while failing to close on any.
In the process, Iran and the United States moved closer to confrontation. Meanwhile, North Korea continued to enhance its arsenal of weapons of mass destruction. The Middle East continued to destabilize. And the confrontation minded American President seemed hell-bent on tearing down long-standing alliances and relationships.
Without strong American leadership in global affairs and with a collectively exhausted G7, one major country after another took advantage of the void at the top of the geopolitical ecosystem.
India annexed Kashmir, which was also claimed by neighboring Pakistan, thus bringing two nuclear powers into direct confrontation. China cracked down on democracy protesters in Hong Kong, flaunting international agreements. Russia’s leaders continued to meddle in its “near-abroad,” to destract the people at large from their faltering domestic economy.
Even Korea and Japan chose to enter a phase of confrontation over security, which had long been subdued. And Britain’s new Prime Minister was determined to have his country leave the European Union, come hell or high water.
Looming large in the background was the existential challenge of climate change. The summer of 2019 had turned out to be the hottest on record, punctuating an already long line of record-setting “hottest” years.
And so it was in the summer of 2019 that glaciers melted faster than ever before, deforestation accelerated, sea levels rose at an ever-increasing pace and feedback loops started to become clearly identifiable.
As the summer of 2019 wound down, leaders of the “ancien regime” sat down to dinner in Biarritz, pretending as if it was all business as usual — as it had been for the past forty years.
They dined from an exquisite menu of traditional regional cuisine. And of course, cake was served for dessert.
*Α New York-based international analyst with extensive financial sector experience. [United States]
** First published in theglobalist.com