Volatile currencies and large-scale demonstrations make the headlines, but free market economics has been our saviour all along, as Roger Williams explains.
Market-Changing events are currently commonplace but, with the exception of Sterling, currencies remain surprisingly level and somewhat steady.
Brexit negotiations are claimed to have moved Sterling up one per cent against the US dollar in a day as prospects for an agreed, staged exit for the UK from the European Union became more likely. In a month, sterling appreciated five cents (four per cent) against the dollar, as the graph below shows:
Despite progress/no progress in China trade talks and new sanctions, the yuan moved a little around the seven yuan to the dollar mark but remains largely unchanged. This is despite riots in Hong Kong; Taiwan being threatened with takeover of day-to-day control by China and Hikvision being blacklisted by the US Administration amongst other negative factors.
China’s military might is being flaunted. China’s bases on ‘created’ islands in the South China Sea continue to be countered by the presence of the carrier USS Ronald Reagan keeping international shipping lanes open. China’s aggressive military policy is integrated with almost monthly purchases of land and port facilities.
A $2.4 billion Chinese trading zone in the United Arab Emirates is the latest announced in the string of Chinese-owned port facilities, which now stretch from China to Maday Island in Burma to Chittagong in Bangladesh – and from Hambantota in Sri Lanka, to Gwadar in Pakistan, and on, via the UAE, to Djibouti and to Piraeus in Greece.
China’s debt mountain continues to grow – to spiral out of control, many would say. It has risen from just over one and a half times China’s Gross Domestic Product to two and three-quarters GDP since 2005.
China has huge reserves estimated in excess of 22 per cent of GDP to offset this, but household borrowing in China is estimated to be double Chinese government reserves at $6.5 trillion, up from $757 billion in 2008. Falling car sales, falling growth, falling industrial production and soaring pork prices are leaving China’s economy embattled.
The unrest in Hong Kong has similarly had little impact on the Hong Kong dollar in the last month, only falling from 10 pence to the pound to 9.9 pence in the last 30 days as I write this. This is somewhat surprising as China, via its editorial attack dog, the Global Times, published a punishing editorial against Hong Kong’s ‘extreme capitalist system’.
In the People’s Daily, a more restrained but still critical article was published. It criticised developers and singled out Li Ka-shing after he suggested that young protesters should be shown more understanding.
The lack of foreign exchange market reaction in China and Hong Kong is perhaps because of direct action fatigue; right now the world has a plethora of demonstrating activists. They are demonstrating about their rights, against corruption, and increasingly about implementing ‘green’ policies. Only the latter demonstrators seem to think that capitalism is at odds with their aims.
Perhaps this is because in battling climate change, the petro-world economy is such an easily identified culprit and target. Climate change demonstrations are the ones that seem easiest for extreme demonstrators to capture, moving the message and expanding it to include as ‘at fault’: capitalism, banking, hunting and the shooting sports.
It links anything bad for the climate with capitalism and corporate industrial culture – though nothing could be further from the demonstrable truth.
Corporate-capitalist innovation such as wind power has thrived, particularly in the UK where renewables are substituting for older power-generating capacity. Recent readings of UK offshore wind power came in as low as £39.50 per megawatt-hour.
This has plummeted 35 per cent in two years and removed the need for government subsidy. Once thought impossible, this will help the UK to continue to close older power plants. Moreover, energy storage using liquid air technology developed in the UK should enable renewable energy power plants to replace gas turbines for peak loads on an economic basis.
If activists’ claims about the devil of capitalism go unchallenged, the narrative gives sole credit to the activists for bringing about the change – despite the fact that it is the market itself that implements new technology to meet a demand.
If we allow the narrative that corporations and banks are unnecessary, or are agents opposed to change, to go unchallenged, then we are shooting the very thing that can enable us to meet the challenges of climate change. Worse still, other extreme aims of the activists may be fulfilled.
The fire of direct action is being fanned by social media and by the videos taken by participants. It is damaging economies as well as causing people to focus on the reasons for the action. Just a quick review of the world shows just how many counties are embroiled in large-scale demonstrations:
Chile – Demanding the end of the repression of a minority;
China – Hong Kong demanding freedom from China’s influence;
Egypt – Demanding an end to the dictatorship;
France – Gilets Jaunes protests continue about unfair taxes;
Iraq – Against government corruption;
Lebanon – Demonstration against poverty and corruption;
Spain – Catalan separatists;
UK – Brexit and Extinction Rebellion.
The unrest in these countries is second only to war in creating economic difficulties and, in some cases, removing a country from the list of potential markets for field sports products, though not for firearms necessarily.
In the UK, export/import licences can become difficult to obtain. Suppliers in these markets can suffer and your products can be caught up in delay or even, in extreme cases, loss.
If you add the countries undergoing unrest from widespread demonstration or direct action,
to those countries that are embroiled in trade disputes, then you multiply the risks of international trade, e.g. China-USA; Iran-USA; EU-USA and Japan-South Korea.
This is not to say you should curtail trade with any of these countries, but go in with your eyes open. Consider obtaining supplies from China or indeed Turkey (before US sanctions?)
They are both somewhat beleaguered and you should be able to negotiate good prices. Be prepared for the potential for delivery of high-tech products from Japan and/or South Korea to be delayed.
Watch shipping rates out of China as the swine fever crisis impacts freight rates; some empty outbound ships perhaps? It is a mess out there. Take advantage if you can.