We have been emphasizing three major forces that are disruptive for investors: the US policy mix in both absolute terms and relative to other major countries, the escalating trade tensions, and immigration. Most of our analysis has focused on the policy mix and trade. We turn to immigration here and share these observations.
The peak in both US current account deficit as a percent of GDP, and China and Japan’s surpluses are behind us. Similarly, the apprehension of undocumented immigrants along the US southern border last year was the lowest since 1971. At its peak of the Syrian crisis in 2015, 100k people a month were fleeing to Europe. Now, the refugees, largely from Libya, are coming at a pace of 4-10k a month, with is about where it was a ten years ago.
That the challenges may be smaller than previously is not meant to dismiss the disruptive forces at hand. Rather, it is to suggest that the issue may lie more with the political narrative than the economic dictates. What the current debate about trade and immigration have in common is they are both expressions of nationalism. Nationalism is both an inclusionary and exclusionary principle.
There were two great solutions to the Great Depression. Nationalism and socialism.It took different forms in different countries, of course. Economic and military nationalism are obvious. The socialism was in the redistribution policies and the reluctant acceptance of the government’s role in supporting aggregate demand.
The Great Financial Crisis threatened the economic and political elites in the US and Europe. Brexit in the UK, the election of Trump in the US, the populist as embraced by one of the two main political parties. In Europe, what began in eastern and central Europe has grown west to Austria, Italy, and is even knocking on Germany’s door in Bavaria. The language already exists, “lugenpresse” or lying media; “infest” to dehumanize foreigner, and a registry proposed in Italy for Roma with the intent of “mass cleansing, street by street, and neighborhood by neighborhood.
