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April 20, 2017

Don’t bet on Trump turning globalist

We recently argued that it was too early to pass judgement on whether Donald Trump would transform into a classic Republican president, or whether his radical agenda would resurface. Greg Ip takes the same position, warning that it is premature to think of Trump as having gone globalist after his attack on Syria. That is not so. On economic issues, he argues, Trump will stick to his radical agenda. This is why we are taking an interest in this story, which would otherwise fall outside our reservation. Ip notes that, on immigration and trade, the "Republican working-class" is closer to Trump than to other Republican leaders. Ip says it will be Trump’s strategy to extract concessions from trading partners rather than to go for all-out trade wars. And Trump will not be averse to using unilateral action, in defiance of WTO rules. 

FAZ, meanwhile, reports that Berlin is busy preparing itself against trade measures from Washington. The government has composed a paper on the German current account surplus, for discussions during the spring meetings of the IMF and the World Bank this week. The paper makes three points. The first is that the bilateral US-German trade deficit should not matter. The insinuation is that the trade surplus is due entirely to the policies of the ECB, which is to keep interest rates artificially low. Secondly, the mirror image of the current account surplus is the capital account deficit. Germany has invested €63bn into the US last year alone. And finally, the German government has estimated that the current account surplus will sink from 8.6% in 2016 to about 7% next year.

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April 20, 2017

A note on UK election polls

The one firm lesson from last year’s electoral shocks is not that extremist positions always prevail. The lesson is that one should not rely too much on opinion polls, but take error margins very seriously. The French polls do not tell us that Marine Le Pen or Emmanuel Macron are ahead of the other candidates. They are telling us that the candidates are neck and neck. 

This is not the case in the UK. The Tories have a lead of some 20pp over Labour. And, since Labour is also committed to Brexit, it would now take an alliance of the LibDems plus Labour and Tory dissenters to forge an anti-Brexit majority. This is not going to happen. As Labour will enter the elections with eurosceptic Jeremy Corbyn as its leader, the one certain conclusion we can draw already is that the fast-shrinking window for Brexit reversal will close on June 8 under any conceivable outcome. The question is whether it will be Theresa May or Jeremy Corbyn to lead the UK out of the EU.

We noted a comment by George Eaton in the New Statesman, who says the Tories are fearful that the landslide they expect may not happen because they might find it hard to energise their voters. Nobody in the country believes that Corbyn will ever become prime minister. Eaton quotes one Tory MP as predicting that the majority will be much less than 100. Labour will run a highly localised campaign, allowing MPs to deviate from Corbyn's line, and the Tories fear this might increase the Labour vote in some constituencies. In 2015 the Tories rallied their supporters, who wanted to prevent Ed Milliband from becoming prime minister and to stop a Labour alliance with the Scottish National Party. Since nobody now believes that Corbyn stands a chance, and since Corbyn has now explicitly ruled out a coalition with the SNP, there is not much to attack him with.

The journalist and pollster Peter Kellner cites historic evidence of big shifts during election campaigns. It is fair to expect an increased majority for the Tories, given where the polls are now. But politics has become much less predictable everywhere in the world. This is not necessarily good news for Labour. Kellner recalls the 1983 election, in which Labour started with support of 34%, but ended up with 28%. Labour is at 24% now. If they fall under 20%, the party might face annihilation at the election due to the first-past-the-post system. A shift in the opposite direction would produce a much narrower Tory victory.

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