Not surprisingly, perhaps, tensions between the US and Europe are emerging. The US is growing alarmed by the prospect of economic contagion spreading from Britain and Europe, upsetting the stock market, piling on more debt and undermining the Federal Reserve Bank’s anti-inflation strategy. Trooping in to see Kwasi Kwarteng at 11 Downing Street on Wednesday were some of the top guns from Wall Street institutions such as Citi, Bank of America and JP Morgan. They told the Chancellor that he could not wait until late November for his plan to calm the market mayhem. He would have to keep “communications” with the big beasts of Wall Street, they warned.
Before the UK’s mini-budget, Biden had also tweeted that he was “sick and tired of trickle-down economics”, claiming “it has never worked”. This ideological difference with Truss is already having an impact. US Treasury officials last week encouraged the International Monetary Fund (IMF) to warn the British Government not to stoke consumer demand with tax cuts while trying to curb inflation through interest rate rises. “It is important that fiscal policy does not work at cross purposes to monetary policy,” an IMF spokesman said, adding emphatically, “The nature of the UK measures will likely increase inequality”.
The most stinging criticism of British policy came from Larry Summers, the former US Treasury secretary, who claims: “The UK is behaving a bit like an emerging market turning itself into a submerging market.” Given that Summers had been a lone voice among Democrats warning the Fed about Biden’s inflationary trillion-dollar pandemic relief handouts, his words were particularly chilling.
Yet, even Summers approved of some of Biden’s sky-high spending plans, notably the $1.2 trillion infrastructure bill passed by Congress last year. Post-pandemic investment in roads, bridges and green energy projects is boosting jobs and innovation. In the past year alone, US employment has increased by 5.8 million, while the unemployment rate remains low at 3.75 per cent, just marginally up on the historically low figure of 3.5 per cent in July.
As an article in Bloomberg recently noted, some US companies who got spooked by supply chain issues have been “yanking” their factories out of troubled China and relocating to America. “Rattled by the most recent wave of strict lockdowns in China – the long-time manufacturing hub of choice for multinationals – chief executives have been highlighting plans to relocate production, using the buzzwords onshoring, reshoring or nearshoring, at a greater clip this year than they even did in the first six months of the pandemic,” Bloomberg claimed. The article cited the arrival of several massive chip and semiconductor factories in the US, a trend that Biden’s economic team is proudly touting as part of its $52.7 billion bipartisan CHIPs and Science Act, although it only passed into law in August. Speaking last month at the Intel semiconductor manufacturing plant in Ohio – a top Democratic target in the midterm elections for Senate – the president launched straight into campaigning gear.
“Since I came to office, our economy has created nearly 10 million jobs. More than 668,000 manufacturing jobs,” Biden said. “Proof of point that ‘Made in Ohio, Made in America’ is no longer just a slogan.” With Donald Trump-like bravado, he called it the “fastest growth in all American history”.
Americans have been returning to work in large numbers, yet, as in Britain, there are still more vacancies than applicants to fill them. For the first time, the total number of those employed has risen above its pre-pandemic-level under Trump. Wages are also cooling after increasing by roughly 5 per cent this year. That obviously feels like a setback for workers but is highly desirable, according to the Fed, which believes wage inflation stoked the rise of consumer prices (even as it helped to mitigate their impact).
Millennials are even feeling confident enough of their power to become “quiet quitters” – the fashionable new term for employees doing the bare minimum at the workplace, knowing they won’t be out on their ear. We will have to see whether their good fortune holds, but they are not losing any sleep over rising costs. According to Tilley, US workers are in a good position to rein back discretionary spending – even if their savings are depleted.
Not that everything is doom and gloom on the (for now) darker and colder side of the pond. Last week, Kemi Badenoch, the new International Trade Secretary, was in New York to sell Britain as an island of “dynamism and ingenuity”.
The visit came only days after Liz Truss admitted there was little chance of a free-trade agreement with Washington, but still Badenoch was upbeat. She told 400 US executives and investors in New York that Britain was “going for growth” and that the UK is an “innovation nation”. “The message I want to send here in the Big Apple is that we’re the nation with big ideas,” she said. “And we want even more of you to be a part of it.” Given the price of UK assets in dollars today, there is little doubt that Americans will be buying British over the next few months and years. Janet Yellen, the US Treasury secretary, is on the campaign trail ahead of the midterms and is urging US companies to invest. At a car plant in Dearborn, Michigan, where Ford is rolling out its new electric F-150 Lightning pick-up trucks, she said the Biden administration was delivering “modern supply-side economics” by providing incentives for investment rather than traditional Republican remedies such as deregulation and tax cuts.
This is the new dividing line between Labor and the Conservatives, Republicans and Democrats. Shadow chancellor Rachel Reeves has already adopted the same catchphrase, talking about investing in jobs and people as the “modern supply-side approach”.
With the UK in turmoil, there is no doubt who has the advantage for now. There are, however, conservative voices cheering on Truss. An editorial in the Wall Street Journal on Thursday said the Prime Minister was a “convenient scapegoat” for the failure of the Governor of the Bank of England and other central bankers to raise interest rates earlier. It pointed out that the UK’s total debt-to-GDP ratio (86 per cent) was lower than America’s (127 per cent). The big question is whether Truss can withstand the barrage of political pressure to about-turn long enough to see whether her dash for growth pays off – or leaves Britain broke.