Grand Narratives Blind Us
Imposing dramatic geopolitical theories ignores the mundane, but meaningful.
Otium Den recap:
I run a Singapore-based business where most of our revenue is in US dollars but most of our costs are in Singapore dollars. A depreciating greenback has a meaningful impact on margins. In January, every US dollar could be exchanged for 1.37 Singapore dollars. By July, that had dipped over seven percent to 1.27.
The relative foreign exchange hardship of a four-person company in southeast Asia is not an influential rebuttal to Trump’s economic policies. His mercantilist instincts, which view a strong dollar with suspicion, stem from a desire to protect American manufacturers. A weaker currency helps that sector.
David & Goliath
But the struggles of smaller US companies in the face of his grand economic project are often ignored in favour of those who shout loudest. Steve Eisman, the investor best known for profiting from the US housing bubble in 2008 (Steve Carrell in the Big Short) had CNBC journalist Steve Liesman on his podcast this week. They discussed why economists’ apocalyptic predictions on tariffs’ impacts had failed to materialise.
Liesman suggested that big corporations, as always, had ways to weather the disruption. They had a direct line to the Department of Commerce, and could, like Apple, carve out exemptions. Their lawyers and accountants are familiar with the arts of intra-company pricing. They can fudge things. It’s the small Jim & Martha shops, ostensibly affluent on $200k a year, that would feel the pain.
I think back to Brexit in the UK. Then the wailing of the big banks, ordering the plebs to vote remain, probably helped sway the vote the other way. But they actually had much more in common with disaffected Brexiteers, who felt they had little to lose. The great financial services jobs exodus to Paris or Frankfurt never materialised in any meaningful way. Nor did predictions of economic collapse. No serious Remainer believes rejoining the EU is any panacea for the UK’s current economic malaise. Yet we rarely hear from the small businesses for whom it makes things a little bit harder everyday.
Certainty vs narrative
It’s a cliche, but true, that smaller businesses rely on certainty. It wasn’t the Brexit vote itself that engendered its opposite, but the nebulous nature of any strategy to enact it. I spoke with the former Australian trade negotiator Dmitry Grozoubinski in Singapore who said a similar thing about tariffs. He has little time for Trump’s politics but was just as scathing about hyperbolic rhetoric. Grozoubinski believes there is a cogent argument for tariffs in addressing unfair trade practices. They are a neutral instrument rather than some terrible aberration. For Grozounbinski, the problem is rather that they’re implemented with caprice rather than underlying strategy. Take, for example, the recent 50% tariffs slapped on Brazil. This was not an economic act - the US runs a trade surplus with Brazil - but a political one. Trump was punishing the country for its prosecution of its former president Jair Bolsonaro.
Not, perhaps, a case of Trump supporting other authoritarians, as many seem to think. I’m not au fait with the ins and outs of Latin American politics. But Brazil’s current president Lula, twice convicted for corruption and money laundering, doesn’t seem like a white knight trying to cleanse Brazil of anti-democratic forces. The 27-year prison sentence dished out to his political opponent for a supposed attempted coup seems a little dodgy. But demonstrating disapproval of that conviction with tariffs adds to an uncertain business environment. Imagine you are a small cafe reliant on Brazilian coffee. Suddenly, external factors, completely unrelated to addressing trade deficits, see your input costs rise by 50%.
We’re quick to frame events like this as part of too grand a narrative, while ignoring smaller, but more meaningful, impacts. They don’t represent the implosion of American democracy but make things a hell of a lot harder for businesses somewhere.
Inverted Cassandras
Doom merchants are inverted Cassandras. Their warnings are overly heeded but their prophecies are overexaggerated. Take the US dollar itself. It has actually recovered somewhat from July lows. Bloomberg reports that dollar bears bought into the de-dollarization thesis (that its reserve currency status is slipping away) are starting to feel the pain. It is at a two-month high and traders in Asia and Europe say hedge funds are adding option bets that it will rebound versus most major peers into year-end.
It’s a result of the US’s economic resilience, which perpetually defies predictions around its demise. Ironically, the aggressive interest rate cuts Trump so wants have been thwarted by the economy’s strength in the face of policies markets expected to be so damaging. There hasn’t yet been the great labour market pain many expected. Its stock market thunders on despite the talk of an AI bubble. Demand for its treasuries remains steadfast even as commentators talk of an impending debt crisis.
“The stickiness of things”
Janan Ganesh writes about the remarkable Israel peace deal as evidence of the “stickiness of things”. Trump is remarkably close to Obama in a foreign policy that advocates for a pivot to Asia. That America won’t anymore get involved in “forever wars” in the Middle East but will instead commit resources to combatting its great superpower rival China. Yet its influence in the Middle East remains so great that it can’t give it up. “Notice that a Beijing-brokered deal for Gaza was not even a subject of remote discussion”, Ganesh says.
As politics becomes a subset of entertainment, it’s much more fun to weave dramatic narratives than focus on smaller tangible effects. As further evidence of the stickiness thesis, Ganesh harks back to Covid. Where we were once “bearish about the future of cities and in-person contact”, now “the main gripe about urban life is once again that it is too popular to be affordable.”
Political predictions go awry when we try to grasp phenomena through pre-conceived theories. Covid was once supposed to be a life-as-we-know-it upending event where the future would be virtual and you wouldn’t leave the house without testing and a mask. Instead, its deleterious effects were much mundane - inflation, education, mental health.
But such malignancies are so often the result of compounding smaller details. By ignoring these in favour of theatrical theses, we risk flying blind. The tariff catastrophists look silly because we don’t see their impending doom. If their forecasts materialise over a longer period, as those Jim & Martha shops slowly slip into bankruptcy, it will be too late. We’ll already be on to the next geopolitical drama.