Putting Americans First, or Putting Growth First?

So nearly a week since the US midterm elections, and neither bond nor equity markets have seen significant moves. Is that right? After all, while we had all expected the Democrats to make gains, winning both houses of Congress was a bit of a surprise. The departure of Rumsfeld, and Bush’s acknowledgment that he could use suggestions as to what to do about Iraq were also not expected. So we have a weakened President for the remainder of his term, and a resurgent Democratic party. But what is there to worry about?

Perhaps nothing, but some of the Democratic rhetoric has suggested that the long period of increasing trade liberalisation and globalisation we have enjoyed might be under threat. “Putting Americans First” was a campaign slogan – this means punishing companies that outsource American jobs, and standing in the way of new trade agreements that open up global markets. The Financial Times this weekend suggested that Bush will now find it “virtually impossible” to reopen the Doha world trade talks next year. Globalisation has been a major force in driving global growth rates to record levels, and in keeping inflation low. We should be very alert as bond fund managers that protectionism does not reassert itself as a popular concept – it could cause collapses in growth, blips in both inflation and deflation, and, history shows us, wars.