Summer of fear | Financial Times

Summer of fear | Financial Times

August used to be an easy month, blissfully free of news. Now, it seems like it’s the time when everything happens. President Donald Trump has gone on holiday, and we can only hope that means less tweeting (though I’m not holding my breath). But before leaving, he managed to trigger a market panic by labelling China a currency manipulator, which was of course followed by China’s own retaliation by allowing the renminbi to slide below the magic number 7, and ultimately, Beijing’s stabilisation of the situation by bringing the currency back up. The message is clear — China is drawing a line in the sand and won’t back down in the face of Trump’s trade threats. 

As I explore in my column this week, I think this is only the first shot in the currency wars, which I expect will end in a major market correction by the end of the year, if not sooner. Already, Americans are feeling the anxiety from more volatile markets and downbeat economic data (firings and bankruptcies are up). Consumer spending on fuel, for example, is way down, which is quite unusual in the midst of the summer travel season. 

I spoke recently to Ulf Lindahl, chief executive of AG Bisset, about how the market dominoes triggered by the US-China trade war and the lacklustre response to the Fed’s recent rate cut could fall, and he made a fascinating prediction — mass tourism may be where we see consumers cutting back first as the economy heads south. He points to a recent survey showing that many Americans say they won’t be going on holiday this summer; only 42 per cent said they were confident they could afford a vacation, which is the lowest rate since 2013. “People won’t cut their cell phones. They might delay buying cars. But they can always cancel a vacation,” says Lindahl, who predicts that “mass tourism may be the Achilles heel”, of the global economy in the next downturn. 

I agree with him, and if we see a big downturn in summer tourism numbers, it could be a harbinger of trouble for other sectors, like transport, retail and real estate. One thing I’ll be watching closely is how housing prices hold up this year, particularly outside of prime urban areas. I’m actually writing this Swamp Notes from the Catskills, which has in recent years had a rebirth as a weekend retreat for Brooklyn hipsters (or in my case, wannabe hipsters). Sullivan County is one of the poorest in the state of New York, and yet, one can now spend $500 on a farm to table dinner, in one of the boutique establishments that have opened up to cater to the “glamping” crowd that floods in from the city on Friday. Will such economies be sustainable in a downturn? I wonder. 

Whatever the answer, the current moment presents an opportunity for Democratic presidential candidates. It is time for them to set themselves apart from the president on issues like global trade and foreign policy. I was disheartened that in the debates a couple of weeks ago, none of the leading Democratic candidates had a more constructive policy message around China or how the US should redefine its place in the world in the post-Trump era. Only one candidate, John Delaney, was supportive of the Trans-Pacific Partnership. Too many sounded too much like the president; insular and defensive. As the last week has proved, China bashing isn’t an economic solution — indeed, it may turn a summer of fear into a winter of recession. 

Recommended reading

  • In the wake of yet another round of horrible, senseless mass shootings in the US (which is the only rich country in the world that tolerates this sort of violence), I re-read The New Yorker writer Malcolm Gladwell’s important 2015 piece about the psychology of mass shootings. The key takeaway — these events have a viral nature, and do not happen in isolation.
  • In a summer of record heat, The New York Review of Books’ piece on climate change predictions is worth a read.
  • And in the FT, Patti Waldmeir’s excellent feature on bankruptcies among the elderly in the US underscores the shameful fraying of the social safety net in America, but also foreshadows what I think will be the biggest political battle of our time — the fight between older Boomers and younger millennials for a share of what may soon be a shrinking economic pie.

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