TBL Thinks: Fall of the French Government & Shake-up for North America's Free Trade Pact

Dec 06, 2024

Dear Readers,

After a short break and long travel, we are delighted to say once again, it’s Thinking Time. This week we cover the no-confidence vote in France and what that potentially means for the European Union, and Trump’s plans to levy tariffs on Mexico, Canada, and China.

TBL Thinks is our way to summarize the most important paywalled, longer reads relevant to global macroeconomics, helping you cut through the noise. With that in mind, please enjoy.

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The Fall of the French Government

French Government Falls After National Assembly Approves No-Confidence Vote (WSJ) In yet another political twist, the French government has fallen after a vote of no-confidence by the National Assembly. This marks the first time in more than 50 years since the National Assembly has voted to oust a prime minister. France has recently found itself in the midst of a political gridlock as right-leaning leader Marine Le Pen gains popularity as the country battles a cost-of-living crisis that has weakened the working and middle class—inflation continues to sink politicians.
France’s deficit is projected to reach more than 6% of the country’s GDP by the end of the year, which is double the European Union’s limit. France’s public accounts were largely affected by Macron’s tax cuts for corporations and households, along with subsidies to counter the pandemic, and a spike in energy prices after Russia’s war on Ukraine. Prime Minister Barnier’s budget demand to reduce the deficit includes about 60 billion euros ($63.5 billion) in spending cuts and tax increases. Le Pen concedes the need to narrow the budget, but instead wants to do it by way of France slashing its contribution to the European Union, cutting medical care for foreigners, and further reducing international development aid. A nationalist wave continues to sweep the globe.
President Macron touted Barnier as the country’s best option to build consensus amongst the people of France, but Barnier, who also served as the European Union’s Brexit negotiator, found himself struggling to win in negotiations with the country’s fractious parliament. Since becoming President in 2017, Macron has positioned himself as the last defense against the far-right in France. Post the no-confidence vote, Macron now finds himself without a fully-empowered government, and no obvious way to form one for months. In the midst of a growing budget crisis, “Investors have driven up risk premiums on French assets over peers to levels not seen in more than a decade and sent stocks plunging.”
Le Pen’s victory with the no-confidence vote marks a shift in the tides for France as it signals a move away from business-friendly policies that helped bring global finance to the country after Brexit. The uncertainty of which direction France will go in brings into focus uncertainty pertaining to the European Union as a whole. While we are in no position to make grand predictions about the fate of a continent, political instability in Europe continues to be a major TBL theme, especially with concern to the euro versus US dollar relationship, as well as global fixed income.
Macron has closely echoed former European Central Bank President Mario Draghi’s view on the future of the European bloc — in a report earlier in the year, Draghi warned “of an existential threat without massive investment and greater integration.” With Le Pen casting herself as the antithesis to this approach, calls for Macron to resign are growing from murmurs to loud whispers, and a new and unpredictable president for the US, the world as we know it is changing, and we will be watching alongside with you as it all unfolds.

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Trump 2.0 Tariff Policies Begin

Trump Fires Salvo on North American Trade Pact (WSJ) It would be remiss to talk about the prevalence of nationalism and uncertainty of a country’s direction without looking homeward and talking about 45-47. Trump’s tariff pledges signal his desire to rewrite the terms of North-America’s free trade pact, and follow through with tariffs on China.
Trump announced on his social-media platform, Truth Social, his plans to levy tariffs of 25% on imports of all goods from Mexico and Canada, while additionally accusing the two countries of facilitating illegal immigration and fentanyl abuse in the US. Trump also called out China for what he says is failure on its part to regulate chemicals that go into fentanyl, and promised to levy additional tariffs on 10% of Chinese imports. Trump has promised to take a combative position with China over fentanyl and could be heard on the campaign trail to “tariff the hell out of China” unless it helps stop the flow of the drug into the US. He’s baaack—our friends at BMO cite the return to “Post As Policy,” or another way of saying “Trump’s tweets will move the market themselves.”
The question that arises is if the threat of tariffs is an effective negotiation tactic or the start of a sustained campaign to reshape global trade and the American economy? Economists, foreign leaders, and business executives are all planning for fresh disruption to global trade, even as it reels from high inflation and high interest rates. We at TBL are watching the evolution of twin supply chains—does the United States start or continue on a path of reshoring, or the act of bringing industries back to the US that have spent decades overseas?
Trump’s plans for increased tariffs on China will come as no surprise to anyone who followed his campaign, unlike his plans for tariffs on Mexico and Canada, which suggest Trump could be looking to reopen the U.S.-Mexico-Canada Agreement, a free-trade accord that came into force in 2020 and replaced NAFTA. Trump has repeatedly referred to NAFTA as the “worst trade deal ever made” and attributed it to the widening of the US trade deficit and the loss of manufacturing jobs. The tariff threat also suggests that Trump could be looking to include immigration, security, and drugs in a negotiation usually only reserved for trade. Mexico has already threatened retaliation if such tariffs are imposed, while Canadian law-enforcement agencies are working on strengthening their abilities to detect opioids flowing into the US.

Until next time,

TBL Thinks

Bitcoin is hitting its stride. With massive ETF inflows, major geopolitical changes, increasing corporate adoption, and a proposed U.S. strategic reserve, 2025 is shaping up to be a defining year.

Here's the real question you need to be asking yourself: Are you ready? Is your bitcoin house in order?

With the bull run gaining momentum, this is your window to get ready for what's ahead. Register below: