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Examining the Urgent Israel–Palestine Conflict and Its Shameless Political Economy

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The ongoing conflict between Israel and Palestine is complex and multifaceted, with historical roots dating back to the early 20th century. In 1922, Great Britain took Palestine under its administration (de facto colonized) as mandated by the League of Nations following World War I. Unlike other territories that eventually became fully independent, Palestine’s administration included the Balfour Declaration of 1917. This declaration expressed British support for “the establishment in Palestine of a national home for the Jewish people,” solidifying the Zionist goal of establishing a Jewish only state in Palestine into a reality. The 1947 UN mandate led to the creation of Israel, marking the beginning of Israeli policies characterized by settler colonialism, which have led to humanitarian crises and the displacement of millions of Palestinians.

Despite Israeli violations of international law, the United States continues to support Israel, driven by political and economic interests. Support for the Israeli occupation is considered crucial for US geopolitical strategies in the region. If Israel disappears or weakens decisively, Washington worries that BRICS countries, particularly Russia and China, may obtain control of much of the world’s oil, which would be cataclysmic for US national security. Washington’s goal is to keep the world in “balance” by keeping Eurasia divided as we shall see later.

Divisions in both Eurasia and the world are rising with the ongoing war between Israel and Hamas (as well as Palestine). The current armed conflict has created a humanitarian disaster in Gaza. As of August 15, 2024, Israeli military actions have killed over 40,000 Palestinians, including women and children, and wounded over 92,000 more. The actual deaths may be higher due to war induced underestimation. Ending this conflict requires addressing its root causes, including historic and ongoing Palestinian displacement, occupation and the reality of Zionist apartheid. Shifts in the international political economy may offer opportunities for a lasting resolution to the Israel–Palestine conflict.

History of Israeli settler colonialism

During the British Mandate from 1922 to 1947 there was large-scale Jewish immigration from Eastern Europe to historic Palestine. Jewish migration especially surged in the 1930s due to Nazi persecution. In 1947, the United Nations mandated the partition of historic Palestine into separate states for Jews and Palestinians, leading to the establishment of Israel. Since then, the Israeli state has engaged in settler colonialism.

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Two parts of Israel’s settler colonialism shaped the modern conflict we see today. First is the expulsion of the indigenous Palestinian population. Following the partition, many Palestinians were expelled from the Israeli part of historic Palestine. This violated Chapter 3, Point 1 of the United Nations General Assembly Resolution 181 (II), which states:

“Palestinian citizens residing in Palestine [modern-day historic Palestine] outside the City of Jerusalem, as well as Arabs and Jews who, not holding Palestinian citizenship, reside in Palestine outside the City of Jerusalem shall, upon the recognition of independence, become citizens of the State in which they are resident and enjoy full civil and political rights.”

The second is Israel’s establishment of illegal occupations and settlements in Gaza, the West Bank and East Jerusalem, violating international law. Moreover, Israel’s occupation extends beyond Palestinian territories to regions such as the Shebaa Farms (which is part of Lebanon) and Golan Heights (which is part of Syria).

Israeli settler colonialism in Palestine, like all forms of colonial rule, is driven by political and economic motives. The primary objectives are to dominate land and resources — water, natural gas reserves and fertile soil — while systematically subjugating the Palestinian population. Additionally, settler colonialism serves to suppress socio-political conflict within Israel.

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Limited access to basic necessities such as clean water, electricity and food has devastated the Palestinian people. Poverty, malnutrition and health crises are widespread. Furthermore, the systematic denial of rights to nutrition, healthcare, education, employment and freedom of movement by the Israeli occupation has caused immense suffering and deprivation. The occupation has displaced millions of Palestinians, making them refugees outside historic Palestine. Millions more face forced expulsion from their lands.

Despite these harsh measures, the US steadfastly supports Israel

Since the 1960s, the US has played a pivotal role in providing extensive material and diplomatic support to Israel, establishing it as its foremost ally in West Asia. Despite ongoing human rights abuses and international criticism, why do US policymakers, who ostensibly champion human rights, continue to support the Israeli occupation of Palestine?

One possible explanation is that US policymakers have been integrated into the Zionist project. However, this theory raises questions, as the US also supports various regimes in Eastern Europe with anti-Semitic “founding myths” and histories of complicity in the Nazi genocide — most notably in Ukraine.

Another explanation suggests that American policymakers feel a kinship with Zionism due to its roots in European colonialism against non-white peoples. However, this overlooks the history of conflicts among European and North American countries before 1945. It also ignores the ethnic diversity within Israel, where a significant fraction of Jews are not of white descent. Mizrahi Jews of Middle Eastern and North African descent are the largest Jewish ethnic group in Israel, comprising approximately 40%-45% of the country’s population.

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The third, more strategic explanation posits that Washington’s support for the Israeli occupation of Palestine is crucial in maintaining a divided Eurasia as we mentioned earlier. As Hal Brands, a professor of global affairs at the Johns Hopkins School of Advanced International Studies, describes it:

“All the great conflicts of the modern era have been contests over Eurasia, where dueling coalitions have clashed for dominance of that supercontinent and its surrounding oceans. Indeed, the American Century has been the Eurasian Century: Washington’s vital task as a superpower has been keeping the world in balance by keeping Eurasia divided.”

The same view was previously articulated by Zbigniew Brzezinski, arguing that the United States’s task is to establish itself as the sole political arbiter in Eurasia and prevent the rise of any potential rival power (or alliance) that could threaten its material and diplomatic interests. Israel plays a crucial role in helping US policymakers achieve this goal. This understanding widely pervades mainstream US politics.

Therefore, considerations of the international political economy likely drive US policymakers’ support for the Israeli occupation. However, this does not negate the validity of the other two explanations.

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Zionism and white racism serve as ideological tools that obscure underlying political and economic motivations. In Western Europe, legitimate rejection of the Nazi genocide legacy is often invoked to make it politically unviable to criticize US support for Israeli occupation. This effort aims to maintain European countries’ limited strategic autonomy vis-à-vis the US. In the Global South, support for Palestinian freedom has varied with the consolidation of the neoliberal project, but remains present. Today, many Global South countries commonly condemn Israeli violations of international law.

Washington continues to support Israel even as the Israel–Hamas war persists, with Israel being accused of war crimes and causing a humanitarian crisis in Gaza.

The state of the Israel–Palestine conflict today

For years, Gaza’s two million residents have endured Israeli-imposed blockades marked by violence, severely restricting travel, trade and daily life. Under these conditions, Palestinian resistance to Israeli occupation has evolved and intensified.

Tensions between Israel and Palestine have often run high, but the events of October 7, 2023 marked a new level of horror. The current round of armed conflict began when Hamas launched attacks against Israel. The subsequent Israeli armed response, primarily targeting Gaza (but also on the West Bank), demonstrates a now genocidal colonial policy.

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Israel has launched indiscriminate airstrikes and heavy artillery attacks on civilian-occupied areas of Gaza. The Israeli Defense Force (IDF) has destroyed most buildings there, including hospitals, schools and residential structures. Particularly egregious is the use of artificial intelligence to target buildings without human corroboration of the generated kill lists, resulting in mass civilian deaths among Palestinians.

Besides attacking cities where Palestinians seek refuge, Israelis have seized control of the crossing into Rafah on the Egyptian border in violation of the Camp David Accords. This control allows Israel to use the blockade as a tool of war, causing mass starvation by preventing food, medical supplies and essential aid from entering Gaza. The insufficient aid that makes it through fails to meet escalating needs, leading to starvation and disease. This exacerbates an unprecedented humanitarian crisis and violates international law.

Despite the IDF’s assaults, Hamas resistance fighters persist in operating through extensive tunnel networks, complicating Israeli efforts to neutralize them.

In addition to these ongoing attacks on Gaza and the West Bank, Israel has also engaged in military conflicts with Hezbollah in Lebanon. The border between the two countries has witnessed daily exchanges of fire since the current conflict broke out. The fight with Hezbollah has not yet escalated into a full-fledged war, but fears are growing as both sides continue to carry out strikes. It remains to be seen whether the most recent Israeli attacks on Hezbollah using exploding pagers and walkie-talkies will ignite the situation further.

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Iran’s mission to the UN has warned that any “full-scale military aggression” by Israel in Lebanon could trigger “an obliterating war.” Tensions have run high between Tehran and Jerusalem following Israel’s attack on the Iranian embassy in Syria and the assassination of  Ismail Haniyeh, the political leader of Hamas in Teheran. However, repeated rounds of  mediation seems to have defused the situation for now.

The Ansarallah (Houthi) forces in Yemen have imposed a naval blockade on ships passing through the Red Sea to and from Israel, excluding those of Israel’s supporters. Reportedly, their goal is to pressure for a resolution to the conflict stemming from Israeli attacks on Palestine. Despite military operations on Yemen led by the US and its “allies,” these ineffective efforts have not ended the naval blockade.

The scale and intensity of Palestinian killings by the Israeli armed forces have sparked unprecedented political reactions in the US, particularly outside the mainstream. Students and educators across many universities are protesting en masse, urging their institutions to sever financial ties with Israel and calling for a shift in US foreign policy toward Israel. These protests are concerning for the Biden administration, as they resonate strongly with the progressive wing of the Democratic Party. If the administration continues its unwavering support for the Israeli government, it may adversely affect Democratic Vice President Kamala Harris’s prospects in the 2024 presidential election.

Consequently, the current administration is attempting a balancing act. It publicly critiques some Israeli policies, such as calling for the replacement of Israeli Prime Minister Benjamin Netanyahu and imposing sanctions on certain Israeli settler groups in the West Bank. It has also publicly stated that weapons will not be supplied to the Israeli armed forces for attacks on Gaza. However, in practice, the administration continues to support Israel through military aid, even during attacks, and provides diplomatic cover. This was evident when the administration vetoed a UN Security Council resolution advocating full membership status for Palestine.

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The nuanced public posture of Washington regarding its verbal policies is also influenced by another factor. With the end of the unipolar moment, marked by increasing strategic alignment between China and Russia, many countries in the Global South are asserting greater strategic autonomy. This was evident in the overwhelming United Nations General Assembly vote in favor of full membership for Palestine.

Given that US support for Israel’s policies is driven by its aim to maintain division in Eurasia, excessive support in a multipolar world may counteract this objective.

Two examples illustrate this point clearly. First, Saudi Arabia, now aligned with the BRICS nations, has insisted that any strategic engagement with the US must exclude Saudi recognition of Israel. This stance appears not to have been opposed by the US government, despite directly contradicting the intentions of the Abraham Accords.

Second, many countries in the Global South, historically aligned with the US such as Egypt — also a BRICS member — are actively pursuing a genocide case against Israel at the International Court of Justice (ICC). This legal action was initiated by South Africa and highlights shifting alliances and strategic autonomy among these nations.

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Within Israel, Netanyahu is concerned that ending the military offensive without achieving a clear “victory” could not only end his political career but also result in his conviction on corruption charges. This partly explains his repeated escalatory interventions. Meanwhile, family members of Israelis held by Hamas are advocating for negotiations between Hamas and the Israeli government to defuse the situation. Israel’s increasing international isolation, coupled with military setbacks and economic challenges, is prompting calls for a change of course from some quarters within the country.

How do we achieve lasting peace in the region?

To bring an end to the war, addressing the roots of the conflict is essential, including historic and ongoing Palestinian displacement, occupation and the reality of apartheid. Against this backdrop, any lasting resolution to the Israel–Palestine conflict must include the following elements:

First, the ongoing genocidal attacks on innocent Palestinians by the IDF must be universally condemned. Those responsible for Israeli crimes against international law must be held legally accountable. Second, there must be an immediate ceasefire. Proposals are currently being discussed. Hamas has announced that it is willing to accept the proposal of the US  President Biden that was put forward in May 2024 but Israel remains recalcitrant. Third, immediate humanitarian assistance and relief measures, including infrastructure rebuilding, must be provided to Gaza, the West Bank and East Jerusalem.

These are initial steps, but addressing the root cause of the conflict — the Israeli occupation of Palestine — is essential for achieving a lasting resolution. Several steps are required to make this happen:

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One, Israeli occupation of all Palestinian territories must end unconditionally.

Two, all Palestinians displaced from historic Palestine must be accorded the right to return and live with full human rights. If Israel cannot agree to this, it should make mutually acceptable territorial concessions from its share of historic Palestine to rehabilitate displaced Palestinians. These lands should be fully integrated with Palestine.

Three, both Israel and Palestine must recognize each other’s right to exist as an independent country, with Palestine having membership in the UN to match Israel’s.

As discussed earlier, fundamental shifts in the international political economy have made a lasting resolution more achievable. Countries in the Global South and like-minded nations are increasingly vocal in their opposition to Israeli occupation. The international community urgently needs to increase its measures to pressure Israel and its external supporters into agreeing to a sustainable solution to the Israel–Palestine conflict.

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[Ting Cui and Lee Thompson-Kolar edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

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Why good financial advice is a tricky balancing act

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Editor's View: If financial advice is so rewarding, why don’t more people know about it?
Tom Browne – Illustration by Dan Murrell

Back in September, Money Marketing’s cover story looked at the importance of psychology in financial advice and how it could help advisers gain a better understanding of their clients.

The successful advisers, it argued, will be those who guide clients to strike the right balance between emotional and financial needs.

While this is far from easy, it is essential for achieving financial wellbeing.

Tom Mathar, head of Aegon UK’s Centre for Behavioural Research, identifies this challenge as navigating a path between present and future financial security, as well as between present and future contentment.

Many people seek financial advice for emotional reasons…

Central to Mathar’s philosophy is the distinction between immediate and delayed gratification.

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“Immediate gratification is easy to recognise,” he says. “We experience it when we enjoy a quick fast-food meal, satisfying our immediate need for food. However, in the long run, it may be unhealthy.”

By contrast, delayed gratification involves decisions that benefit us in the future, such as saving for retirement or pursuing long-term educational goals. These, however, may seem less urgent or even unaffordable in the present.

The solution, says Mathar, is not to focus solely on one or the other, but to harmonise both. In other words, it’s to find a way of achieving ‘balanced gratification’.

…and Mathar says advisers who are attuned to these emotional drivers will deliver a different kind of advice

This concept — also the title of an upcoming book by Mathar — is a middle ground where we can enjoy life’s small pleasures today without sacrificing future financial security or personal happiness.

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Navigating trade-offs

At the heart of balanced gratification is the mental discipline required to navigate life’s trade-offs. The difficulty, as Mathar explains, lies in “balancing financial security for today with financial security for the future, and finding happiness now versus happiness in the future”.

This challenge is something every client can relate to: how can you ensure that your financial plan meets both your short-term desires and your long-term goals?

The advisers of the future will act more like life planners with a strong financial component

In Mathar’s view, the advisers of the future will act more like life planners with a strong financial component, rather than the traditional ‘alpha’ types who focus solely on performance metrics and portfolio optimisation. What matters more, he argues, is understanding clients’ values and goals, and helping them navigate their journey with these in mind.

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“Advisers can be very helpful in addressing this,” Mathar says, “helping clients make trade-offs that align with their life aspirations.”

He illustrates this concept in presentations by showing a sample one-page financial plan for use in meetings. The plan includes sections on values, goals and current status, and a wellbeing objective for the next 18 months. This holistic approach ensures that clients consider both the present and the future in financial decisions, while being satisfied at all stages.

Mathar also notes the relevance of balanced gratification to the more difficult aspects of life, such as dealing with pain and setbacks.

Central to Mathar’s philosophy is the distinction between immediate and delayed gratification

For example, ignoring financial problems may reduce stress in the short term but probably leads to long-term difficulties. Similarly, quitting an unsatisfying job could cause temporary financial insecurity but may pave the way for a more fulfilling career.

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“Here, too, the concept of balanced gratification applies,” says Mathar. “It teaches us to accept the challenges of the moment while planning for the future. This way, we create a life that is fulfilling and meaningful both in the present and in the long run.”

Of course, many people seek financial advice for emotional reasons, such as the need for validation, overcoming fear or indecision, or simply seeking permission to make a change. Mathar argues that good advisers listen to these emotional needs and provide holistic advice that goes beyond financial metrics.

The solution, he says, is to find a way of achieving ‘balanced gratification’

“Advisers who are attuned to these emotional drivers will deliver a different kind of advice; one that is more likely to get referrals, be profitable and make advisers feel optimistic about their future.”

As always, it’s all about striking the right balance.

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Tom Browne is editor of Money Marketing


This article featured in the November 2024 edition of Money Marketing

If you would like to subscribe to the monthly magazine, please click here.

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UK launches new task group to improve aviation accessibility

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UK launches new task group to improve aviation accessibility

The Aviation Accessibility Task and Finish Group will be led by Paralympian Baroness Tanni Grey-Thompson

Continue reading UK launches new task group to improve aviation accessibility at Business Traveller.

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How to survive a trade war with the United States

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​​Sam Lowe is a partner at Flint Global, where he advises clients on UK and EU trade policy. He is also a senior visiting fellow at King’s College London and runs Most Favoured Nation, a newsletter about trade.

Donald Trump’s trade ideology can be summarised as: exporting things is good; importing things is bad.

Writing for mainFT ahead of last week’s vote, Trump’s once (and possibly future) trade chief Robert Lighthizer provided a neat précis of what will drive the new administration’s approach to trade:

Countries that run consistently large surpluses are the protectionists in the global economy. Others, like the US, that run perennial huge trade deficits are the victims.

And in this world in which the largest and most powerful economy on earth is a victim, consistent large trade surpluses with the US mean one thing and one thing only: tariffs.

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So, who might be on Donald’s [s]hit list?

To give a crude idea, I have created a new ranking I shall name (with the helpful input of Louis), the Measure of American Goods Advantage, or MAGA, index.

Using a data on US goods exports/imports from 2020-2022 (note: neither Trump nor Lighthizer seem to care about services trade, so, like them, I have pretended services don’t exist), I have divided countries’ trade balances with US by their total to create the following EXTREMELY CRUDE schema: 

In summary: if you have a score greater than zero (on the x-axis above), Trump’s got his eye on you.

If your score is between 50 and 90, then you should probably hope the US forgets you exist.

If you have a score greater than 90, then… well to be honest it’s probably because you’re a small island nation (I’m looking at you Faeroe Islands, Falkland Islands and Pitcairn — 97.79, 97.16, and 92.19 89.5, 70.2, and 30.1 respectively) or you are Lesotho (96.89) or Cambodia (92.10).

Of the significant (randomly chosen by me) economies lodging persistent surpluses with the US, Vietnam scores highly (82.02), as do Ireland (70.11), Thailand (58.92), Bangladesh (58.77), China (3.7), Malaysia (55.53), Denmark (54), Indonesia (53.00), Switzerland (43.28), Germany (35.22), India (31.22), Japan (30.98) and Mexico (18.24).

On the other hand, the UK persistently buys more from the US than it sells (-6.79) as do Singapore (-7.84), Brazil (-15.75), Belgium (-15.8) and the UAE (-51.72). A big shout out, I guess, to South Sudan with a score of -99.66.

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Now, of course, countries won’t be solely judged on the size of their persistent surplus/deficit. There are many other ways to find yourself on the [s]hit list, and the MAGA index doesn’t account for the actual value/volume of trade under consideration.

But, y’know, it’s certainly a factor.

So what happens next? My working assumption is that there will be a (close to) universal tariff uplift, in the 10-20 per cent range, with a higher tariff applied to China. However, beneath the headline there will be a large number of company- and country-specific derogations. 

I have written about the possible company-specific exemptions elsewhere, and there is fairly robust academic evidence from the last Trump administration and the experience of his China tariffs that — unsurprisingly — proximity to the regime results in better outcomes.

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Here’s the abstract for the paper linked above (emphasis added):

We investigate whether firm-level political connections affect the allocation of exemptions from tariffs imposed on $550 billion of Chinese goods imported to the United States annually beginning in 2018. Evidence points to politicians not only rewarding supporters, but also punishing opponents: past campaign contributions to the party controlling (in opposition to) the executive branch increase (decrease) approval likelihood. Our findings point to quid pro quo arrangements between politicians and firms, as opposed to the “information” channel linking political access to regulatory outcomes.

So… if you haven’t already started making friends with the new President and his buddies, there’s no time like the present.

On the country-specific exemptions, my working assumption is that the EU, UK, Japan, etc will face three categories of request: 

—‘Buy more American stuff (or export less of your own stuff);

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— ‘Support me in my global endeavours’ (see: trade restrictions on China); and
— ‘Miscellaneous, other’. 

The higher a country scores over 0 on the MAGA index, the greater the focus on ‘Buy more American stuff’. To put it another way: there are going to be a lot of deals, but they might not be traditional free trade agreements. 

Taking them one at a time:

‘Buy more American stuff’ (or export less of your own stuff)

To give an idea of what this could look like, we need look no further than the deals done under the first Trump administration.

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In March 2018, to ensure an exemption from Trump’s Section 232 tariffs, South Korea agreed to a ‘new’ [slightly amended] trade deal which saw it “voluntarily” restrict the export of Korean steel to the US, increase a compliance-related quota for US auto imports from 25,000 a year to 50,000, exempt most US autos from stricter Korean CO₂ emission requirements, accept a delay in the phase of a US 25 per cent tariff on light trucks (originally 2021, now 2041), and change Korea’s medical procurement rules to ensure they pay market value for US-produced medicines.

In a similar attempt to avoid the Section 232 tariffs, in 2019, Japan agreed a deal with Trump that granted the US CPTPP levels of tariff reductions for US food exports (note: Trump had pulled the US out of the then-TPP) without receiving CPTPP levels of access to the US market for Japanese autos in return. 

But of all the deals done during Trump’s first Presidency, my fave is easily the EU’s. Erstwhile European Commission President Jean-Claude Juncker managed to talk Trump out of applying car tariffs to the EU by telling Trump the EU would commit to buying more American soyabeans and liquefied natural gas. Did Juncker have any power to actually make this happen? No. Did Juncker simply identify a trend that was happening anyway? Yes. Did it work? Seemingly! Genius.

So what will Trump want this time? As per last time, it really depends on the market/country. 

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Take the EU. Along with asking the EU to exempt US exports from its Carbon Border Adjustment Mechanism, Trump will probably ask the bloc to buy more US cars, buy more food, and export less stuff back Stateside. This would require a change in EU consumer preference and tariff elimination (for the cars), a change in safety rules and tariff elimination (for the food) annnnnd a change to Germany/Eurozone’s entire growth model (in order to export less stuff). So, not easy!

It might be easier in theory for the UK to do something, but the food safety issue (chlorine chicken) remains a bit of a political minefield.

If I were in charge of anything (I’m not), I would be looking at the defence budget and mapping out where I was planning to buy American kit, or might consider buying American kit, and packaging it up into something with a big number attached to present to Trump when he comes knocking. You probably also want to take a view on the pros and cons of a certain Trump-adjacent space company, because you’re going to get asked.

‘Support me in my global endeavours’

I assume the conversation with lots of countries, including those scoring below 1 on the MAGA index, will go something like this: “As well as buying more stuff from us, if you want to avoid the universal tariff you need to impose high tariffs on Chinese imports”. 

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This will create a dilemma for the UK, EU and others. Assuming that China would retaliate to any blanket tariffs, countries will forced to choose between the US blanket tariff and the Chinese retaliatory tariffs.

In practice it probably won’t be quite so binary, and countries may try to placate Trump with commitments to impose tariffs they were considering anyway. For example, the EU has already imposed anti-subsidy tariffs on Chinese electric vehicles, as well as lots of trade defence tariffs covering products such as steel, bikes, graphite, biodiesel and others, so may try to placate him by initiating new investigations into products such as EV batteries, solar, and wind turbines.

The UK, which already lags behind most of the G7 in ‘slapping tariffs on China’, could introduce a few more to bring itself in line with the G7 average and hope that China doesn’t get too annoyed.

Under this category, you also have conversations around coordinating export controls and sanctions.

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‘Miscellaneous, other’ 

Given it’s Trump, there are quite a lot of other things a country might want to try to do to keep him happy. For example, you could invite him to meet the Royal Family, give him a big shiny Orb, stop trying to regulate his mate’s company, approve a golf course, etc.

But will any of the above work? For some countries: sure, to an extent. There will be tariffs, but not everyone will be treated equally. It all depends on what he asks for, and the extent to which a country is able to deliver it (or, as per Juncker, pretend to deliver it.).

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What is Elon Musk’s net worth? How Tesla shares zoomed after Donald Trump wins election- The Week

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What is Elon Musk's net worth? How Tesla shares zoomed after Donald Trump wins election- The Week

With shares if Tesla surging after Donald Trump’s election victory, Elon Musk’s net worth surpassed $300 billion, according to Bloomberg Billionaires Index.

What is Elon Musk’s exact net worth?

Tesla stock soared around 28 per cent, taking Musk’s fortune to $313.7 billion with a leap of $50 billion. The business mogul, who owns X, is the biggest gaining individual since Trump’s emphatic victory.

However, this is not the first time Trump’s net worth crossed the $300 billion mark. In 2021, his fortune was touched an all-time high of $340.4 billion. 

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This comes after the President-elect announced that his policies would benefit the SpaceX founder, including support for the astronautics firm’s push to reach Mars.

Musk, on the other hand, had donated a whopping $1 million to Trump’s presidential race.

Another move by Trump in Musk’s favour was backtracking from his July announcement to slow the transition to electric vehicles. In August, after Musk backed and donated for the Trump campaign, the Republican said, “I am for electric cars. I have to be, because Elon endorsed me very strongly.”

A strong earnings report by the car-maker also boosted Musk’s fortune in mid-October, raising his net worth by $34 billion in a single day.

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The Republican has also hinted that Musk will be given the role of an advisor.

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Mixed news on China’s stimulus

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Unlock the Editor’s Digest for free

This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newsletters

Good morning. A question for readers: will we see a significant shift in consumer sentiment now that a change in presidential administrations is coming? As a reminder, the University of Michigan sentiment index, at 70, is 40 per cent off of its 2022 lows, but still well below historical averages. Will there be a step change in the next survey or two, or a continuation of the current trend? Send us your thoughts: robert.armstrong@ft.com and aiden.reiter@ft.com

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Chinese stimulus

Holders of Chinese equities got mixed news on Friday. At the National Peoples’ Congress meeting, the government announced an Rmb10tn ($1.4tn) fiscal package to bail out local governments’ bad debts. The package itself, following the pattern of recent stimulus measures, is underwhelming. The Shanghai and Shenzhen CSI 300 stock index and the Rmb edged down on the news: 

Bad debt is a problem for China. Chinese local governments, which are not able to issue their own bonds, have traditionally used financing vehicles similar to investment companies to borrow money; after the real estate market crash, many provinces could no longer use land sales to pay back those loans, resulting in bad “hidden” debt not on their official balance sheets. Swapping out the debt will limit financial risks and free up spending capacity, at a moment when many local governments have cut back on public services. But the size of the relief is relatively small. From Tianlei Huang at the Peterson Institute:

The impact of this package on the immediate economic situation will be limited. [Finance minister Lan Fo’an] estimates that local governments will save about Rmb600B [$83bn] in interest payments over five years. [Rmb120B, or $17bn] each year is just too small to make a difference . . . the actual spending [by the local governments] so far this year is almost Rmb3tn [$417bn] lower than the amount that was budgeted [for] this year. 

Rmb10tn is probably not enough to make a lasting dent in the hidden debt problem. While Lan said there is around Rmb14.3tn ($2tn) in hidden debt on provinces’ balance sheets, the IMF put the number at Rmb60tn in a report last year. On top of that, the Rmb10tn number is not all new commitments. While Rmb6tn of new debt will be issued for the debt swap facility, Rmb4tn is debt that was already available to local governments for related purposes. 

Without more muscular stimulus, chances that the economy will hit the government’s 5 per cent growth target this year remain low. But more may be forthcoming. The MOF meeting in October laid out four goals of the stimulus, of which resolving local hidden debt was the first (followed by boosting bank lending, stabilising the real estate market, and supporting consumers). While we are not sure they will continue to be rolled out in the announced order, statements made by Lan imply the government will deliver on the other three goals. 

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Markets have been impatient for details on the stimulus. The timing of this package, right after the US election, suggests that the Chinese government was waiting to learn who would win the White House before making strong financial commitments. And the scale of this package raises the possibility that the government is saving its fiscal firepower in order to respond to the Trump administration’s eventual China policies. A more concrete and substantial fiscal package may emerge soon.

(Reiter

Regional banks

Regional banks rallied furiously after Donald Trump was elected. The KBW Regional Bank Index, which has been a terrible performer for years, is 12 per cent higher than the day before the election. Does this make sense?

The reasons to be bullish on banks under the new administration are something of a grab-bag. Lighter regulation should help a bit, though Basel “endgame” capital rules have already been watered down. The Consumer Financial Protection Bureau’s cap on late credit card fees, currently in legal limbo, seems likely to disappear now, which will help issuing banks. And it appears that bank investors never believed Trump’s own promise to cap interest rates on cards at “around 10 per cent.”

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Lighter touch regulation of mergers will certainly help big banks with merger advisory operations. But it could help the regionals, too. Consolidation among midsized banks makes economic sense in an industry dominated by a few large players. But it is not clear — at least to Unhedged — that merger rules were the most important bottleneck to consolidation. The problem, instead, has been getting the management teams of acquisition targets to give up their prestigious, well-paid jobs. This is what made the 2019 merger of BT&T and SunTrust, creating Truist, so remarkable. 

More important is Trump’s impact on interest rates. If you believe that Trump means high deficits, low taxes, and high growth, all that suggests that the Fed will keep short term interest rates relatively high. And high — but not too high — short term rates are good for banks. Here is a chart of the US banking industry’s net interest income plotted against the policy rate:

Line chart of % showing Higher short rates are good for bank profits

The magnitude of the changes in net interest margins is much lower than the magnitude of changes in the Fed policy rate. But remember that very small shifts in net margins make big differences in banks’ net income. And while many banks have sources of revenue that are not rate sensitive, for regional banks, interest margins are important.

At the same time, the old cliché that banks borrow short and lend long still persists. This would suggest that bank margins are better when the yield curve is steep. To the degree that a given bank has a significant amount of long-term bond or mortgage assets on its balance sheet, this may be true. But in the last five years, the relationship in the industry has been almost the opposite of what the cliché would suggest (note that this chart is quarterly, so it does not capture the recent steepening of the yield curve):

Line chart of % showing Borrow short, lend long, not

But here is the weird thing: financial reality and market perception are different. One bank analyst of long experience noted to us that while the yield curve is not particularly important for regional bank profits, buying regional banks when the curve steepens is a “turn off your brain trade”. Whether it matters for earnings or not, bank stocks rise on a steepening curve. Here is the KBW regional bank index and the Treasury curve:

The relationship is sloppy in detail, but it is clear that big moves in the curve move bank stocks. 

So a key question for regional bank stocks is whether the curve will continue to steepen; if it doesn’t, the nascent rally may stall. Many economists have argued that Trump’s policies are, on balance, inflationary. If that’s right, and the Fed has to lean policy against them, the curve may stay flat. But Trump, and his policies, have been known to surprise people.

One Good Read

On polling.

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