50’s Nostalgia Ain’t What It Used To Be

By Michael Every of Rabobank

The RBNZ cut the OCR 50bps to 2.50% vs. 25bps expectations but in-line with our forecast. Notably, the RBNZ said they are “open to further reductions as required” and we are now forecasting a further 25bp cut to 2.25% in November. Some of the Bank’s comments also raise an eyebrow: “Domestic inflationary pressures have continued to moderate as projected, giving the Committee more confidence that inflationary pressures are contained. Global inflation has continued to decline through 2025. Inflation is especially low throughout Asia, and negative in China. Headline inflation in the US has increased, but evidence suggests that pass-through of tariffs to consumer prices has so far been weaker than expected. To date, there is little evidence of a material impact of tariffs on the prices of New Zealand’s imports or exports.” They’re right on Asia, if one overlooks food prices; the jury is out on the US, but they are echoing Fed new-boy Miran; and NZ hasn’t imposed any tariffs and a tariff on its exports couldn’t be inflationary for them anyway.

The EU raised steel tariffs to a Trumpian 50% level over a sharply reduced quota threshold as Bloomberg notes “The EU is trying to convince the US to lower its rate for EU steel and jointly target China instead, with the EU industry commissioner saying the EU shares the same industrial agenda as the US.” Yet does the US care as long as Europe already echoes its tariffs vs China?

In broader geoeconomics, US lawmakers are pushing to expanded chip export curbs on China, where a bipartisan Congressional panel just urged widened controls on chip tools and tighter coordination with US allies amid fears that the Trump White House is easing tech limits (SCMP). Will Europe belatedly follow suite on that front too in the areas it contributes to chipmaking?

It’s argued the US, in allowing preferential tariff access for some African countries to expire, is “pushing Africa further into China’s orbit’ (SCMP) – albeit as importers from it not exporters to it, at least not of textiles anyway.

Moreover, the Business Standard notes ‘From oil to pistachios: How barter trade is reshaping global commerce.’ That’s a dollar-priced but dollar-dodging scheme referred to here for years now, and underlined by recent Bloomberg exposes on how China is buying oil and metals from Iran in exchange for construction contracts and cars. Sanctions can’t do anything about it: stronger economic, or non-economic, statecraft tools would be required from the US. Relatedly, China is adding 11 new oil reserve sites in 2025 and 2026 – “because markets” obviously.

That’s as Congress also urged the White House to preserve stability in the Indo-Pacific and to “curb China’s Taiwan game plan”; the New York Times reports that Washington law firm Williams & Connolly was hacked by China as part of a larger campaign aimed at US law firms; Ukraine said it expects to get a slow drip of US Tomahawk missiles that won’t be used for deep strikes yet, but the longer Russia refuses to come to the table, the more they will get and the further into Russia they will be allowed to hit; National review warns ‘Brazil’s Leftist President Is Giving China a Foothold in America’s Backyard’; and Indian PM Modi praises Putin at the start of UK PM Starmer’s state visit, which Bloomberg describes as an “awkward note.”

50-50 is one way to read the news from the Middle East, where the Israeli PM’s office reports progress in cautious optimism over talks with Hamas, but some sources have it that the group is refusing to release hostages first as per the deal’s terms, insisting on Israeli withdrawal beforehand, and has named prisoners it demands released in exchange which Israel can’t accept.

Regardless, the Financial Times’ op-ed from Martin Wolf, based on somebody else’s work, argues ‘Trump’s tariffs won’t deliver many jobs’ as “Nostalgia is not a strategy: the past cannot return.” Ironically, as national security concerns soar, it’s the recent free trade past that likely can’t return for neoliberal/neoclassical thinkers who can ‘prove’ how few jobs balance on the head of any policy pin that pricks their ideological bubble.

Indeed, the op-ed ignores key arguments in a contested intellectual space: there are second and third order effects static models don’t capture; onshoring via automation (as with US firm Sharpie) is an economic benefit; and countries who successfully employed neomercantilism (not all, to be clear) gained jobs. Yet nostalgia for “because markets!” in the FT op-ed page lingers given it promised, but months later still can’t deliver, an alternative way to structure the global economy that doesn’t have what it admits are vast, destabilising imbalances in trade and capital flows, and in equality.

On which note, in the US, there is still no light at the end of the tunnel regarding the government shutdown, but Congress seems united against Trump’s shutdown back-pay threat that nobody will get the cash for days work missed so far.

As even a former French prime minister calls on President Macron to quit to end France’s crisis, which would trigger a presidential election that opposition leader Le Pen currently couldn’t contest as she is still in a court battle on that front, a possible way out being floated is France abandoning its planned pension reforms to placate socialists in parliament. Yet would that risk swapping a political crisis for a financial one? ‘What is happening in France may not stay in France, from Mohammad El-Erian, again in the FT, argues “Bond markets are losing patience with political paralysis.”

Yet ECB President Lagarde just re-upped her June argument that the Euro must become a key global reserve currency – right as Europe hits a major political crisis; is in a geopolitical one; is debating using Russia’s frozen FX reserves for Ukraine, scaring off Global South capital; sees whispers of (further) ECB intervention in bond markets; and has adopted a 50% steel tariff. “We are innocent bystanders of policy decisions made in Washington and of portfolio allocation decisions made worldwide, which we don’t have much influence over,” Lagarde said in Paris. “It is not a sustainable position. We cannot remain a passive safe haven, absorbing the shocks created elsewhere. We need to be a currency that shapes its own destiny.” There would be global agreement on the “bystanders” part, not so much on the rest – or at least not without actions that run counter to all Europe’s liberal world order instincts. What odds will the market give of Lagarde succeeding in making a European currency matter globally again in a contested geopolitical environment: 50-1?

Over the Channel, Tory party Shadow Justice Secretary Jenrick is “accused of fuelling ‘toxic nationalism’ with Birmingham claims”, says the Guardian; yet ‘Grassroots Tories want pact with Reform, poll finds’, claims the Telegraph. Ceteris paribus, that would deliver around 50% of the UK vote, all but guaranteeing a Farage-led government with a large working majority. Then what? That’s still a hypothetical for now, but one markets may start to take more seriously ahead.

In the meantime, Adam Tooze is arguing ‘Britain needs a ‘whatever it takes’ moment’. Yet if the BOE goes MMT with markets in this mood, and with the UK running a vast trade deficit, how does that pan out for Sterling and the long end of the curve? Or, if the whole yield curve is ‘whatever it taken’ by the BOE, just for Sterling? Indeed, how does such a radical policy step work without a matching UK industrial policy and tariffs, which in turn requires an energy policy and an overarching geopolitical strategy re: trade blocs, etc? One sees why Martin Wolf prefers his own patent brand of nostalgia – it’s far easier to digest.