On trade, Trump and the Brexiteers are not as far apart as you might expect

When it comes to trade, liberal Brexiteers are cut from a very different cloth from Donald Trump. Or so we’re led to believe.

Trump wants protection. But Brexiteers want more trade, even unilateral tariff cancellations on imports to the UK.

Trump has a pinched and paranoid vision of “America First”. Yet Brexiteers nourish an expansive and open-minded dream of “Global Britain” signing major new deals with emerging market superpowers.

Trump is in the mould of his late 19th century predecessor, William McKinley, who proclaimed: “Protection is but the law of nature, the law of self-preservation, of self-development.” Brexiteers such as Liam Fox, Boris Johnson and Michael Gove, by contrast, walk in the enlightened footsteps of John Bright, Richard Cobden and the Anti-Corn Law League.

But are Trump and the liberal Brexiteers as different as that rhetorical divergence suggest? As he unveiled his new tariffs on steel and aluminium last week, Trump articulated his philosophy on trade to Twitter.

“When a country is losing many billions of dollars on trade with virtually every country it does business with trade wars are good, and easy to win,” he explained. “Example, when we are down $100bn with a certain country and they get cute, don’t trade anymore – we win big. It’s easy.”

One can hear an echo of that “we can’t possibly lose” perspective in the Brexiteers’ misplaced confidence that, because the European Union has a trade in goods surplus with the UK, the Europeans will ultimately be desperate to sign a post-Brexit free trade deal.

“Within minutes of a vote for Brexit the CEOs of Mercedes, BMW, VW and Audi will be knocking down Chancellor Merkel’s door demanding that there be no barriers to German access to the British market,” the now Brexit Secretary, David Davis, famously predicted before the referendum.

What both the Brexiteers and Trump fail to understand is the nature of trade deficits. Trump is deluded to believe, as he clearly does, that a bilateral trade deficit is evidence of a country “losing” in trade and a surplus, correspondingly, evidence of “winning”.

And the Brexiteers are deluded, albeit in a slightly different way, to believe we are, like a customer in a charity shop, somehow doing EU companies a favour in buying their exports – and that we could simply stop doing so without inflicting any harm on ourselves.

But, even accepting all that, Brexiteers would never advocate crude Trump-like tariffs, would they? Perhaps not. Yet leaving the EU single market and customs union are, nevertheless, inherently trade destroying policies for Britain; perhaps the most destructive since the Second World War.

No credible study has found any grounds for believing that hypothetical future trade deals between the UK and the likes of China and Australia could, arithmetically, compensate for leaving the EU’s free trade institutions (which, let us remember, the Thatcher government helped to shape).

It’s also worth delving a little more into the Trump position. On Twitter he embraces bellicose talk of a trade war. But speaking in Davos in January, the tone from Trump and his economic team was rather different. All they wanted, they said up in the Swiss Alps, was “fair trade”, reform of a system “rigged” against America.

“The US is prepared to negotiate mutually beneficial bilateral trade agreements with all countries,” Trump told delegates of the World Economic Forum.

This might get us closer to the underlying substance of the Trump position. What we have is a visceral rejection of multilateralism, or working in concert with other nations, as an equal, to achieve a mutually beneficial end. America will only negotiate with other countries one on one. For Trump, trade is really about power. It’s an ideological view on the appropriate nature of international relations.

One of the most pointlessly destructive elements of Brexit when it comes to trade is that the UK will automatically fall out of the coverage of the 50 or so trade deals signed between the EU and a host of other countries, ranging from South Korea and Mexico to Chile and South Africa.

We will have to scramble to recreate those deals after 2019 merely to avoid damage to our own exporters who have come to rely on them. The net economic benefit of this upheaval is quite elusive.

Moreover, we might ask, what is the objection, if the Brexiteers feel the EU has not been proactive enough in seeking to strike new trade deals with emerging markets, to remaining in the bloc and pushing for change from within, working with similarly pro-free trade allies such as the Netherlands and Sweden?

The obvious answer is that liberal Brexiteers, like Trump, harbour a temperamental hostility to the very principle of multilateralism, even if it delivers the ends they purport to want. It’s a hostility that overrides any rational cost-benefit judgement.

Working through the EU to enhance the export opportunities of our firms and reduce import costs for consumers would not enable these political narcissists to feel, on a personal level, that they had taken back control.

Despite their rhetoric, for liberal Brexiteers, leaving the EU is less about new trade opportunities, than power. And, as with Trump, the power in question is not really their country’s but their own.

#tradesurplus #tradedeficit #DonaldTrump #Brexit #bilateralism #multilateralism

As global media titans like Comcast, Disney and Rupert Murdoch do ferocious battle, someone needs to

For many decades giant American cable companies possessed what seemed like a licence to print money.

By bundling their exclusive blockbuster entertainment content such as live sports with other programming, which was still desirable but which had less mass appeal, they could effectively compel customers to purchase expensive all-in cable subscriptions. The profit margins were extraordinarily plump.

Then along came Silicon Valley and spoiled the party.

By offering relatively cheap online streaming services like Netflix and Amazon Prime, these newcomers created a business model with the potential to destroy the cable empires.

Why buy an expensive cable cord subscription when you can simply use your broadband connection to access your home entertainment through your internet-ready TV, or your computer, or your tablet, or even your phone?

And what if those cash-rich Silicon Valley companies started to seriously compete in bidding wars for those desirable exclusive sports, movie and TV content rights, currently in the hands of the cable companies? What if they started to make the content themselves by establishing studios?

The mass “cord cutting” by Americans, long forecast by industry analysts, hasn’t begun yet. Americans are slow to change their habits. Many have Netflix alongside their cable packages. Yet it’s still clear which way the content wind is blowing, especially with younger “digital natives” far less likely to be in the habit of subscribing for cable.

So how do the cable companies respond? If you can’t beat them join them is one option. Why not buy smaller digital streaming companies and beef them up into potential rivals to the big Silicon Valley players?

Some cable companies have already diversified, acquiring content creators such as movie studios and news networks. They could leverage that exclusive content to serious challenge the incumbents in the battle for digital subscribers.

That was likely a significant motivation for Disney’s recent $66bn bid for 21st Century Fox.

Another tactic for the cable leviathans is simple acquisitions: get even bigger and expand into new cable markets abroad. Control more broadband distribution networks.

Large revenues means larger cash flows, which means more investment firepower for new content production and bidding wars for content rights.

That’s how best to understand Comcast’s dramatic attempted gazumping of 21st Century Fox’s bid for Sky today.

Where is the public interest in all this? The focus here in the UK in relation to the Sky takeover battle has, understandably, been on preserving the plurality of the UK news media environment.

Such concerns fell away somewhat when Rupert Murdoch agreed to sell the majority of his 21st Century Fox business to Disney. Unlike Murdoch, the home of Mickey Mouse doesn’t already control any major British news brands.

And there are no obvious news plurality issues in relation to Comcast, the company behind a couple of large US news broadcasters, owning Sky News. MSNBC is not a big influencer of public opinion on these shores.

It’s possible there might even be more welcome investment in UK TV news if the deal goes through.

Yet there are, nevertheless, grounds for concern.

Competitive and dynamic as the Western world’s media landscape seems on the surface, size still confers power, both commercial and political.

It’s reasonable to be suspicious when the same company potentially provides your home broadband, streams your content, creates that content and also provides your news. There are a lot of potential barriers to customers switching there. Or it’s possible to imagine them being erected. It’s perhaps not a coincidence that, as well as having the largest revenues among media companies in America, Comcast is also one of the firms most complained about by consumers.

This ferocious global battle among giant multinational media and technology conglomerates for content and distribution networks can feel like a remote drama peopled by stupidly-rich oligarchs, moguls and financiers. Perhaps a fitting subject for a new Netflix drama. Fetch the popcorn.

But make no mistake: what these titans are all battling over is our attention and access to our wallets. And it’s essential that our interests as consumers are adequately safeguarded by regulators.

#Disney #SkyNews #Netflix #bundling #cablecompanies #21stCenturyFox #AmazonPrime #RupertMurdoch

The understandable anger of Britain’s striking lecturers

“The students are revolting!” is a familiar cry. Not so much for their teachers. But we nevertheless heard it last week as UK academics kicked off a strike in protest over plans by university bosses to downgrade their pension schemes. Instead of a defined benefit arrangement – a guaranteed annual payout from employers on retirement based on salary – they’d receive a defined contribution. That is, the cash accrued with individuals and employers feeding cash in a pot until the point of retirement.

In the old days, students might have welcomed (more) days in bed. But in this era of £ 9,000-a-year tuition fees many (though not all) are less understanding of industrial action from their tutors. Although pension reforms would apply to lecturers’ future contributions rather than their accumulated entitlements, they are right to think reform would make them worse off in retirement.

Defined benefit schemes in the private sector have been closing to new entrants for many years because they are deemed too expensive and burdensome for employers. The numbers of people in active schemes has more than halved over the past decade. Defined contribution is now the norm almost everywhere except in the public sector. So is this part of that inexorable trend? Are lecturers, selfishly, standing athwart history yelling stop? 

It’s worth examining why academics are being asked to swallow this reform. The most recent annual report from the Universities Superannuation Scheme says its investment portfolio has done well lately, rising by 12 per cent a year over the past five years, taking total assets in the scheme to £60bn in 2017. Indeed, that strong performance is the reason given for the scheme awarding large pay rises to its investment managers, including the scheme’s chief executive, last year.

So what’s the problem? That the scheme’s liabilities have risen even faster than assets since 2014, hitting £73bn. Why? Have there been big pay rises for academics over that time? An unexpected surge in members’ longevity, meaning the scheme will need to pay out pensions for longer? No.

The answer is that it’s the accounting treatment of those future pension promises. Government bond yields fell by around 1.5 percentage points between 2014 and 2017. That means the discount rate conventionally applied by auditors to a scheme’s future liabilities also shrank. The upshot is that the present value of liabilities has risen substantially and the scheme’s deficit (liabilities minus assets) more than doubled from £5.3bn to £12.6bn in three years.

The administrators don’t think the deficit is actually that big. But they’ve still downgraded their estimates of the appropriate discount rate for the scheme’s liabilities, partly on the basis they think investment returns may well be lower in future than in recent years, and they now put the deficit at around £6.1bn.

This, they say, is simply too large for comfort and supposedly demands substantive remedial action.

Universities don’t want to increase their employer contributions, claiming this would mean less resources for students, so they say the only option is to reduce the generosity of the scheme for members.

Like a hung over student in an early-morning seminar, many non-specialists will be forgiven for struggling to follow that explanation. Suffice to say, there are grounds for being suspicious of these actuarial methods of estimating liabilities and for the general view that a scheme’s deficit, even one of this extreme size, should be a cause for alarm and the justification for drastic cuts in entitlements.

For one thing, as interest rates rise, defined benefit schemes’ liabilities will automatically shrink. UK 10-year sovereign bond yields have already risen around 30 per cent on the levels of March 2017 when the scheme presented its last annual report, and that alarming near £13bn deficit.

Aggregate data on the accounting value of all defined pension scheme deficits from the UK’s official pension fund lifeboat, the Pension Protection Fund, shows deficits are extremely sensitive to market interest rates, with swings from just £1.2bn in 2011, to £244bn in 2015, and back down to £162bn in 2017.

Deficits estimated in other ways are also highly sensitive to eminently challengeable assumptions about future rates of returns on assets.

Defined benefit pension scheme deficits should certainly not be casually dismissed. Employers clearly have a responsibility to take prudent action to ensure they are an in a position to meet their pension promises to employees. Yet the brute fact is that accounting deficits matter more for some pension schemes and employers than others. Large schemes with significant deficits attached to ailing companies, as we’ve seen in the outrageous recent cases of BHS and Carillion, are particularly vulnerable.

But the chances of the entire British university sector going bust and all 390,000 lecturers being dumped into the UK’s pension lifeboat scheme seem pretty remote.

Whatever view one takes over whether academics’ defined benefit scheme should survive, or whether they should have to put up with a defined contribution scheme like most of the rest of us, the question should really be determined by considerations of fairness, not panic over an inherently volatile accounting deficit.

And it’s not surprising remuneration hikes for investment managers have not gone down well while members are effectively being asked to bear future cuts, The accounts for the university lecturers’ pension scheme show its underlying costs jumped from £108m to £122m in 2017, driven, in considerable part, by those performance bonuses. This underlines another germane point for this particular pensions showdown and also others. The bigger threat to most people’s standard of living in retirement is not pension scheme deficits but the excessive fees extracted by the managers of their pots.

#lecturers #PensionProtectionFund #pensions #definedbenefit #definedcontribution