While the landmark Brandenburg Gate in Berlin is blacked out in a bid to preserve energy, I can see the bright lights of the Empire State Building blazing from my window in New York. The contrast is striking. Germany has just hit double-digit inflation of 10.9 per cent for the first time in decades. And as for Britain – well, it’s never been cheaper from an American’s perspective.
On the money markets, the pound is now virtually at parity with the dollar. And, if you’re in the unfortunate position of travelling in the other direction, you’ll find that a pound buys you a bit less than a dollar at a high-street currency exchange.
Fortunately for me, I’m flying in the right direction. As you read this, I will be jetting from New York to Heathrow and on to the Conservative Party conference in Birmingham, where I will, I’m sure, be buying the drinks. My flight to Heathrow will undoubtedly be full. Make no mistake, the Americans are coming to Europe – and we are coming in numbers.
You may already have spotted us crowding out your tourist attractions and beaches over the summer. But you ain’t seen nothing yet. Now, in London, friends tell me, every third person appears to speak with an American drawl. Everything in Britain, they say, is “cheap as fries”.
Of course, British hoteliers are not complaining. Stuart Proctor is chief operating officer of The Stafford, a five-star hotel close to Green Park that has long had a special relationship with American tourists, who account for 60 per cent of its guests. Proctor has recently seen demand soar. “The forward bookings of Americans have never been stronger and our fourth quarter will be a record in the history of the hotel,” he says.
Going the other way, of course, things will be difficult. How many Brits will be planning the traditional long weekend of Christmas shopping in New York, downing cocktails at the Plaza and ice-skating in Central Park? Everyday prices are now extraordinary for visiting Brits.
A young journalist who was in Manhattan for a conference last week told me: “A meal with one drink – no starter or dessert – cost around $40 (£36) in a mid-tier restaurant, after tax and the expected tip. I found myself sticking to tap water like I was a student again.”
The next morning, she ordered a croissant, juice and coffee to her hotel room by app, thinking it would be cheaper than the in-house fare. “It cost what I would spend on breakfasts for a whole week back in the UK,” she said.
It would be fascinating to watch this battle royale between Bidenomics and Trussonomics play out, if only we didn’t feel like extras in a looming disaster movie. With America being the world’s greatest economic superpower, president Joe Biden is leaving Liz Truss in the dust for now (notwithstanding a terrifying $30 trillion US national debt).
It begs the question, how has the US emerged from the pandemic so much stronger and richer than the rest of us? And what does it mean for the future?
The big, overarching difference between US and European fortunes in the last six months can be put down to two words – energy independence.
The US is self-sufficient in energy in a way that Europeans can only dream of. America is a net exporter of oil and gas, a luxury for Europeans who are now facing energy Armageddon. Years of reliance on Russian supplies, particularly in Germany, is now exacting a very high price. By turning off the gas, president Vladimir Putin has embarked on economic warfare against Europe, but is finding it much harder to penalise America for pouring billions into Ukraine (a bonanza, by the way, for the US defence industry).
Overall, US energy imports are at only 13 per cent of GDP, while comparative figures for Britain and Europe are 32 per cent and 47 per cent respectively. Luke Tilley, chief economist at the US-based investment firm Wilmington Trust, points out: “We are net exporters of energy while the UK and Europe are big net importers. When oil prices go up, there are lots of US companies that benefit from that.”
Now that the pipelines carrying gas from Russia to Europe have been permanently cut, apparently through sabotage, the US can expect to be exporting energy to Europe at scale for many years to come. Already this year, the US became the world’s largest exporter of liquified natural gas. The emergence of America as a global gas superpower is partly due to the fracking boom along the Marcellus Shale in north-eastern rust-belt states, such as Pennsylvania.
While America is hardly roaring on all cylinders – growth was less than anticipated, at an anaemic 0.1 per cent in the second quarter of this year – the dollar has also benefited from the way the Federal Reserve has ratcheted up US interest rates faster than other nations. Even when the US “loses”, it “wins” in times of turmoil, given that financial institutions flock to the safety of the greenback, the world’s reserve currency, whenever there is bad news. Conversely, because the global market for energy and food is priced in dollars, costs are amplified for the rest of the world.
Neil Shearing, group chief economist at Capital Economics, regards Britain and Europe as fundamentally “worse off” than the US. “The Eurozone will almost certainly experience a recession,” he says. “The US is more touch-and-go and might be able to avoid it.” America is more resilient, he adds. “The answer lies in what has driven the economic weakness in the different economies. The price of imports in Europe has gone up relative to exports.”
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 hand-outs, 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 Labour 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.
And, for all its might, the US has plenty of problems of its own. The cost of exports is rising and inflation is taking its toll on household spending. “The next year is going to feel quite tough because there is going to be a squeeze on incomes,” says Neil Shearing from Capital Economics. “It is not going to be boom time. The idea of the ‘Roaring Twenties’ has definitely been put to bed, but the US will feel much less grim this winter than Europe.”
There may soon be evidence of this on the ski slopes of Verbier, Courchevel and Chamonix. Warren Smith, founder of the Warren Smith Ski Academy in Verbier, Switzerland, says: “In the last 48 hours, we’ve received multiple bookings from skiers in the US. Americans have always loved the way we coach. The recent economic news has fuelled a further push and we, of course, welcome it.”
For the British tourism industry, the low pound will also help. According to data from Visit Britain, US flight bookings to the UK from October to the end of the year are at 98 per cent of their pre-pandemic levels, and almost 22 per cent higher than the world average. In 2019, US visitors spent £4.2 billion in Britain.
Armed with my own (admittedly modest) wad of dollars, I will be doing my small patriotic bit to put the country back in the black at the Conservative Party conference in Birmingham. It is, I’m sure delegates will notice, a real-world example of trickle-down economics.
Sarah Baxter is the director of the Marie Colvin Center for International Reporting, New York