Beggar my neighbour
The weeks since the inauguration of the 47th US President have been likened to a volcanic eruption of the like we have not yet experienced and, whilst political commentary falls outside our remit, the economics of the MAGA agenda are highly political.
We wrote about tariffs in our December note so Trump’s trade battle was predicted although the scope was less so and his motivation was ambiguous. Did he genuinely believe this was a tax credit to boost the federal coffers or merely a negotiation tactic ? The 25% tariff on steel during his first presidency resulted in an increase in prices in the US so most presumed the latter. Indeed the early salvo against Mexico and Canada resulted in some concessions from both parties regarding fentanyl and illegal immigration. The answer to that question is therefore probably both. Such provocations are not without consequences and US supply chains would face serious problems in the short-term and long term relations with Canadians remain damaged whilst Trump continues to talk of a 51st state.
I was surprised by the smug commentary in some newspapers that BREXIT and our “special relationship” would somehow allow the UK to by-pass Trump’s tariffs. As consumers we are so used to paying VAT on almost every purchase that one forgets that such taxes are applied by individual states across the pond and not the federal government. Let’s hope that our trade negotiators are ready for ‘high stakes poker’ - Although the game at Trump’s table this week is beggar my neighbour.
Looking at the bourses, Investors remain confused by all the noise emanating from the White House but continue to buy equities. It may be that buyers see the effects of tariffs as less benign or are just trying to look through this noise to the longer term. Most of the major equities indices are up year to date in the US, UK & Europe. For others, Gold remains a safe haven asset and is close to hitting $3,000 per ounce.
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Drivers on the A14 will be familiar with the smoke plumes visible above Bury St Edmunds. For over 30 years I have driven past the entrances to the British Sugar factory and wondered how they turn the piles of sugar beet near my house into the sugar we put in our coffee. Last week I had the opportunity to join a guided tour around the factory and was fascinated to see the intricate chemical and mechanical processes for myself.
The Bury site is one of 4 sugar refineries in the UK all based in East Anglia. A steady stream of lorries deliver over 2 million tonnes of sugar beet into the factory annually with about 60 per day during the season. These beets are then washed and sorted before being heated in steam via a massive gas powered furness. It generates so much heat that it powers a turbine to produce enough electricity to provide power for 120,000 homes. The visible plumes emanating from the tall stacks are mainly steam, which is re-used 6 times before being released into the atmosphere. Although sugar is the main product the process also produces many co-products including Limex, cattle feed, Bio-ethanol, renewable energy and electricity. Even the stones gathered in the delivery lorries are bagged and sold as aggregate and biogenic CO2 ends up in sparkling beverages.
This is a great example of the circular economy in action with less than 200 grammes of waste from every tonne of sugar. It is also interesting to note that much of their plant and machinery is British made too and many exporters will now be seeking domestic opportunities in the light of pending sanctions.
Don’t feel too guilty about that spoon of sugar on your cornflakes it’s environmentally friendly !