What next for mining? The mining and commodities markets are, as we know, highly leveraged to the global economy and on the whole that looks to be on the up.
Certainly, anyone who attended the Donald Trump rally in Iowa this week would have come away with a rosy view of the US economy. There are more jobs, said the President, and deals are getting done. “It’s win, win, win!”
President Trump’s view of the world doesn’t always match up with everybody else’s but those looking for a more economically sophisticated analysis need look no further than across the road to the Eccles Building in Washington D.C., home of the Federal Reserve.
There Janet Yellen and her team continuing with their piecemeal but long-term strategy of rebuilding US economic strength in depth. Indeed, in a world of Presidential Tweets, European multi-lateral decision-making and Brexit, the Federal Reserve seems to be one of the serious global institutions that even has a long-term plan, let alone delivering on it.
The other notable exception is of course the government of China. China, it has been well-noted is quite prepared to play a long game both in politics and economics. It is of course a country that can afford to do so.
Debate still rages about the extent of global economic influence China is likely to enjoy by, say 2050, with some forecasters arguing it will easily has surpassed the US by then in terms of GDP, and possibly even be closing in on it in terms of GDP per head.
Forbes recently calculated that China’s contribution to global economic output is likely to be around 17.6% by 2025, noting at the same time that although in the years leading up to 2000 the US had consistently contributed around 20%, that every year since then its percentage share of output had been dropping.
Broadly positive for miners
In the broadest context, this presents positives for miners. The US economy isn’t shrinking, it’s just that the Chinese economy is growing faster, and if the pace of growth has slowed in recent years, it remains nonetheless impressive. If it remains at current levels, the Chinese economy could be twice the size of the US’s by the end of the century.
But that’s unlikely. Huge one-off productivity gains as China heaved itself out of medieval economics and past the chaos of Maoist communism are unlikely to be repeated. Growth will slow and a bi-polar world will develop, perhaps with India holding real leverage as the third serious global power.
What wasn’t predictable five years ago is exactly which way the Europeans will jump. The EU remains the single largest trading block in the world, with an annual GDP per head for its 500 mln citizens of around €25,000.
So it is of real significance. It’s multi-partisan approach makes it less influential politically, but there is nonetheless a certain common ideology – the cooling of relations with a Trump-ruled US has been general rather than regime specific, and even the American-loving British have only been able to overcome their moral scruples and kowtow because of the desperation of their post-Brexit plight.
There remains the possibility too that the US will fragment, as it has done before, as Progressives become increasingly alienated from Conservatives and the geographical correspondence between that split becomes more marked and more noted.
But if such a breakup does occur, it will at least be visible and relatively easy to quantify - investors will be able to respond and react in real time.
Internal stability of China still a long term threat
Much more of a long-term threat is posed by the internal stability of China. The upheavals of Tiananmen Square in 1989 have not been repeated, and so far the government has managed to keep a lid on dissent by delivering the stellar economic growth we’ve been talking about.
But managing the transition as growth slows to become closer to the norms for developing countries will be tricky, especially if a credit bubble of some kind bursts in a significant way, or some other generalised economic catastrophe happens.
The last time a country industrialised as rapidly it was America, and it was only pulled from the blink of economic abyss once the process began to slow by the stimulus of World War Two.
We’ve seen what happened afterwards of course, with the onset of the American Century. But the rise of the US wasn’t all plain sailing, and China’s rise won’t be either.
The risk of fragmentation there remains very well, and one way that could happen is that the state could lose control of the internet. The possibility of a Twitter-led revolution in China must be the stuff of Party official nightmares.
For those long-term scenarios gold will always remain the safest haven. But in the meantime, as growth continues, the base metals will continue to do well.