Kabul retreat leaves the UK on a bridge to nowhere

US indifference to its ally’s interests in the Afghan pullout underscores London’s dependence on Washington

Philip Stephens

Joe Biden with Boris Johnson in Cornwall, England, in June © Adam Schultz/White House/Reuters

The parallel with Suez may be inexact, but 65 years later the lessons for the UK are much the same.

Such was Washington’s fury at the Anglo-French attempt in 1956 to seize back control of the Suez Canal that Dwight Eisenhower’s administration cut international credit lines to London. 

Just to make the point, it then voted alongside the Soviet Union at the UN to condemn the UK’s military adventurism. 

Anthony Eden’s government promptly surrendered.

In Afghanistan the defeat is shared, and the anger is on the British side. 

The manner of the west’s scuttle from Kabul damages the Americans but humiliates their ally. 

The US is powerful enough to shrug off the blow.

The thread back to Suez is a relationship that, for Britons, has often looked as supine as special. 

After Brexit, Boris Johnson’s government hailed the UK as an independent actor on the global stage. 

The pullout from Afghanistan, where among allies the UK was the biggest contributor to the US-led mission, has revealed its utter dependence on Washington.

There have been plenty of bumps in the transatlantic relationship. 

Harold Wilson bravely rejected repeated pleas to send British forces to Vietnam. 

Richard Nixon’s administration froze intelligence co-operation when Edward Heath’s government dared to co-ordinate its policies with other Europeans before talking to Washington. 

Ronald Reagan did not ask Margaret Thatcher before invading the Caribbean island of Grenada, a British Commonwealth member state. 

The US has always counted interests ahead of sentiment.

Given his chumminess with Donald Trump, the populist Johnson was never going to be one of Joe Biden’s soulmates. 

His efforts to renege on the Irish border arrangements in the Brexit treaty with Brussels further angered a president proud of his Irish roots. 

For all that, Biden’s casual indifference to the impact of the Afghan retreat could scarcely have been more wounding. 

Johnson set out his vaulting ambitions in an integrated review of foreign and defence policy. 

Free of its European straitjacket, “Global Britain” would rediscover the world. 

Policy would tilt towards the Indo-Pacific. 

The navy’s new aircraft carrier, the Queen Elizabeth, would be dispatched to the South China Sea. 

The government would invest in leading-edge technologies.

The review’s confident prose threw a cloak over the absence of any attempt to identify hard priorities and over a glaring mismatch between grandiose aspirations and limited resources. 

On close inspection it turned out that new ventures in cyber space would be paid for by downsizing the army and cutting back the Royal Air Force. 

Europe, unavoidably at the heart of the UK’s security interests, barely received a mention.

The Queen Elizabeth was supposed to serve as an emblem of national prestige. 

The snag is that the defence budget cannot bear the cost of sufficient F35 warplanes to sit on its deck. 

Carrying more aircraft flown by the US marines than by the RAF, it has become a metaphor for the UK’s unquestioning fealty to Washington.

Estrangement from Europe leaves Atlanticism as the only option. 

Where was “Global Britain” on the streets of Kabul, Johnson’s predecessor Theresa May asked scornfully, as the Taliban took control of the Afghan capital?

Suez broke Eden. The first lesson drawn by Harold Macmillan, his successor, was that henceforth the UK would exercise influence by claiming the role of America’s best friend. 

Macmillan soon enough concluded, however, that playing Greece to Rome in Washington should be balanced with a voice in Europe. 

So began the process that would see the UK join the EU. 

Macmillan’s successors often framed Britain’s role as that of a bridge between Europe and the US, with influence in one amplifying its authority in the other. 

The split from the EU has all but blown up the European support. 

In reining back America’s role as the guarantor of global order, Biden has now withdrawn the US pillar.

For a nation such as Britain, rightly ambitious about the contribution it can make to international peace and security but, operating under unavoidable economic constraints, the facts of geopolitics are simple enough. 

It needs strong ties with the world’s most powerful democracy and influence on its own continent. 

Johnson, deeply mistrusted in Berlin, Paris, Rome and Brussels and visibly disregarded in Washington, now finds himself standing, arms flailing, on a bridge to nowhere.

Britain’s standing in the world is by no means beyond repair but the task of restoring it will fall to a future prime minister.  

Apple’s next decade

Apple exemplified an era of global capitalism that has passed

Tim Cook has to adapt to a new age of tech and globalisation

When talking about Apple, it is hard to avoid superlatives. 

It is the world’s most valuable firm, with a market value of $2.5trn. 

Over 80% of that has been amassed during the tenure of Tim Cook. 

No other chief executive has created more absolute value for shareholders. 

As he celebrates his tenth anniversary at the helm this week, he can look back with satisfaction. 

Instead of trying to imitate Apple’s co-founder, he took Steve Jobs’s creation and made it better and bigger. 

Much of that success has come from maintaining Apple’s record of innovation and its brand. 

But Mr Cook has also made the most of an era of open, globalised capitalism that is fading away. 

He plans to stay in charge for five years or more. 

How he deals with the new environment will form the next epic chapter in Apple’s story.

Even by the standards of other tech giants, Apple is unusual. 

It is older (established in 1977); it mainly sells hardware; it is controlled by investors not founders; and it is more global, with a higher share of sales outside its home market than Alphabet, Amazon, Facebook, Microsoft, Alibaba or Tencent. 

Under Mr Cook’s supervision, it has exploited four trends. 

One is global supply chains: it has built an immense production network with China at the centre and components coming from around the world. 

This machine is being cranked up ahead of the launch of the new iPhone 13 next month, with unit sales of some 90m expected. 

As well as employing Chinese workers, Apple has made a killing from Chinese consumers, the second big trend. 

Its annual sales from China have roughly quintupled from a decade ago, to $60bn, more than those of any other Western firm.

Apple has also thrived in an era when governments were relaxed about firms with high market shares. 

While the handset sector used to be brutal (think of the rise and fall of BlackBerry), and is still very competitive for cheaper phones, at the high end Apple is ascendant, with a revenue market share of over 60% in America and a dominant position in operating systems there. 

Rather than compete with rival tech giants, it has been a beneficiary of a cartellish cosiness, receiving vast payments from Google in return for making it the iPhone’s search engine. 

The last trend is tax avoidance. 

Thanks in part to legal structures using tax havens, Apple has made average cash-income tax payments of just 17% of pre-tax profits over the past decade.

However, those four trends are becoming less favourable. 

Geopolitical tensions threaten global supply chains. 

President Xi Jinping’s authoritarian policies have dulled the attractions of relying on Chinese consumers for 18% of sales. 

His new slogan of “common prosperity” may signal a desire to cut corporate profits. 

Western trustbusters are targeting tech, including those Google payments and Apple’s App Store, which Epic Games, the maker of “Fortnite”, accuses of levying excessive fees. 

And a deal this year brokered by the oecd may gradually force multinationals to pay more tax.

So what, exactly, is Mr Cook’s plan? 

One of his achievements has been to maintain Apple’s cult of secrecy. 

Wall Street survives on a diet of generous share buybacks and meagre information about the firm’s strategy. 

Still, some things are clear.

Apple will find ways to sidestep tax bills, but the rate it pays will probably rise. 

It will continue to shift towards being a subscriber-based firm with over 1bn users who enjoy an array of services (which already generate 21% of sales). 

Apple is still about beautiful design and flawless manufacturing, but it also wants to be a trusted intermediary in a toxic and unruly digital sphere, able to charge handsome fees. 

And it will continue to try to invent a new generation of hardware—iGlasses or iCars, say—that can supplement the iPhone as the gateway to Apple’s world.

Yet on the two thorniest problems Mr Cook has not made up his mind. 

On supply chains, although Apple has shifted the mix of its own long-term assets to America—the share has risen from 38% in 2012 to 70% now—key suppliers including tsmc, a chip firm, are lukewarm about putting production there. 

If the Sino-American rift deepens, or Apple’s relations with Beijing sour, Mr Cook will need to pivot away from China, with momentous consequences for its margins and for world trade.

Meanwhile heat from trustbusters and Apple’s shift into services may catalyse competition with other tech firms. 

Apple has skirmished with Facebook over privacy this year; it could yet push deeper into search, e-commerce or entertainment, breaking apart tech’s cosy club. 

The rest of Mr Cook’s tenure is unlikely to be as successful as the first decade was, but his decisions will be just as momentous.

Over-55s delay downsizing exacerbating home supply crunch

More owners stay put in response to pandemic, valuing larger properties and settled communities

George Hammond 

      © Daisy-Daisy/Alamy 

Older homeowners are increasingly opting to stay put rather than downsize, in a response to the pandemic that is exacerbating the UK’s unprecedented housing supply crunch.

More over-55s are hanging on to their homes — often larger-than-average properties — and adding to a shortage that has fuelled spiralling house prices over the past 12 months.

Fewer than one in four households headed by an over-55 plan to downsize in the near future, according to a report from Legal & General Financial Advice — a smaller proportion than in the last such survey three years ago.

These proposed moves would free up roughly 2.9m homes, says the company. 

When L&G Financial Advice similarly analysed the willingness of older homeowners to sell up in 2018, it estimated that the cohort would release 3.1m homes to the market in the near future.

“Covid-19 has clearly changed the mindset of many older homeowners, and we can see there has been an uplift in those who want to keep hold of their homes,” said Sara McLeish, chief executive of L&G Financial Advice.

“Over time, priorities can change, and it is only natural that over the course of the [past] 16 months people have grown closer to their local community, valued having family nearby and enjoyed having the space to relax while in lockdown,” she added.

The company estimates that about three-quarters of over-55s own their own homes. 

The most common reason given by those who decided to stay in their existing properties was that they wanted to remain attached to their communities, with outdoor space also a priority.

The decision of older homeowners to stay put has suppressed an already-limited supply of new homes into the market. 

Property portal Zoopla estimates that the stock of homes currently for sale is 26 per cent down on the average level through 2020, with demand soaring and new supply failing to keep pace.

Sales are up more than 40 per cent in the year to June compared to the year before, according to the company. 

The reopening of the residential sales market in May 2020, following two months of lockdown restrictions, drove a surge in transactions, spurred by buyers wanting to take advantage of the government’s stamp duty holiday, which was introduced in July last year and ends on September 30.

The rise was accelerated by some purchasers shifting their lifestyles to new working patterns, and seeking larger properties to accommodate working from home.

The imbalance between supply and demand is unlikely to correct immediately, even with the government winding down stimulus measures it introduced a year ago to boost the market, according to Zoopla.

High demand fuelled by lifestyle changes “has further to run, especially as office-based workers receive confirmation about flexible working, allowing more leeway to live further from the office,” said Gráinne Gilmore, head of research at Zoopla. 

As a result, there is likely to be more upward pressure on house prices.

Larger family homes have been in particular demand over the past 12 months, and the average price of a house in the UK has increased by 7.6 per cent in that time compared to an average increase in flat values of 1.2 per cent, according to Zoopla.

But the lack of supply may eventually act as a drag on demand later this year and into 2022 “as buyers hold on for more stock to become available before making a move,” predicts Gilmore.

China Goes Cold Turkey on Property

Weak economic data show just how complicated any transition away from real estate could be

By Nathaniel Taplin

A police officer talking to people gathered at the headquarters of the troubled property developer Evergrande on Wednesday. Real-estate activity in China continues to plummet./ PHOTO: NOEL CELIS/AGENCE FRANCE-PRESSE/GETTY IMAGES

Beijing has decided it wants a German economy: lots of high-tech manufacturing and exports, high savings—and definitely no American-sized housing bubbles.

But China has long been a property-centric economy. Weak economic data for August released Wednesday show just how complicated any transition away from real estate could be, as Beijing continues to mercilessly squeeze property developers.

Policy makers have been counting on buoyant exports and household spending to offset the knock from slowing construction and property investment. 

Exports are still in good shape, but the other half of that thesis—on consumption—is looking very shaky. 

If exports stumble or consumption doesn’t pick up again promptly, Beijing may be forced to relent on its property curbs sooner than it would like and pivot back toward an easier monetary stance.

The political calendar is running out: Next fall the 20th Party Congress will arrive, when most observers expect Xi Jinping to bid for a third term at China’s helm. 

He may be reluctant to permit a deep property-induced slump at such a sensitive time, even assuming the country manages to escape serious financial turbulence associated with the woes of developers such as Evergrande.

August weakness in services and consumer spending was expected given the harsh measures used to control the midsummer Delta variant outbreak in eastern China. 

But the magnitude of the damage still caught analysts by surprise—retail sales rose just 2.5% year-over-year, down from 8.5% in July and well below economists’ expectations of 6.3%. 

September could end up weaker than expected too: A new outbreak in Fujian province is likely to deal further damage, especially if it spreads beyond the province.

Meanwhile, real estate activity continues plummeting. 

Property investment rose just 0.3% year over year in August. 

Excluding January and February 2020, that was the weakest since 2015, during the last major housing downturn. 

Home prices in large coastal markets are mostly still rising, but those in many smaller, so-called third- and fourth-tier cities have begun to fall. 

Land sales by value fell 90% year over year in the first 12 days of September, according to Nomura.

Developers’ housing inventories are far lower than during the 2015 crash in most parts of the country, according to ANZ Bank—with the notable exception of China’s northeastern Rust Belt. 

That may help limit falls in home prices. 

But it can’t prevent a substantial hit to economic activity as new construction projects are put on hold. 

And sharply falling land prices could cause other problems: Land sales are a key source of local government revenue, while developers who levered up to buy expensive land will be left holding the bag, adding further strain to their overstretched balance sheets.

There was never going to be a good time to wean China off property—if such a thing is possible. 

Beijing’s economic policy makers are having a decent go at it right now. 

But the odds may no longer be in their favor.

For the Fed, Inflation Doesn’t Matter...for Now

The central bank’s near-term plans are unlikely to be swayed by inflation readings over the next few months

By Justin Lahart

The Labor Department on Tuesday reported that its index of consumer prices rose a seasonally adjusted 0.3% in August from July./ PHOTO: NAM Y. HUH/ASSOCIATED PRESS

When it comes to Federal Reserve interest-rate policy, what inflation is doing now matters much less than what it will be doing next spring.

What inflation is doing now is running fairly high. 

The Labor Department on Tuesday reported that its index of consumer prices rose a seasonally adjusted 0.3% in August from July, putting it 5.3% above its year-earlier level. 

Core prices, which exclude food and energy items in an effort to better capture inflation’s trend, were up 4% from a year earlier.

A separate Commerce Department measure of inflation that the Fed prefers tends to run a little cooler, but Tuesday’s report suggests it was well above the 2% the central bank is targeting.

Still, the August inflation rate at this point has little bearing on the Fed’s near-term plans. 

The central bank appears to have set a course toward beginning to taper its monthly bond purchases at its November meeting, ending them completely sometime in the middle of next year. 

Inflation measures are unlikely to show either a massive cooling or a massive acceleration between now and November, so the only thing that might actually delay tapering’s start is a really lousy employment report.

Part of why Fed officials want to get tapering under way is that they don’t want to still be purchasing assets when they start raising rates. 

So the sooner they end the central bank’s bond purchases, the sooner they have an option of tightening.

Whether they will start lifting rates once they have finished tapering looks as if it will largely depend on what inflation is doing at the time. 

This is where the question of how much of the recent increases in consumer prices are transitory comes in.

Tuesday’s report showed that some of the pandemic-related issues that have driven up prices are, in fact, beginning to fade. 

Prices for used cars and trucks slipped 1.4% in August from July, for example, and look as if they will register further declines. 

Car rental prices fell 8.5% on the month.

Other prices might be cooling by next spring, when the debate over what the Fed should do about rates becomes more pressing. 

The global chip shortage that has held back the production of cars and other items should have eased by then. 

The same goes for other supply-chain bottlenecks making their way into prices.

But even if the world is in a better place with Covid-19, some pandemic-related frictions could persist. 

Moreover, the continuing difficulties that employers are having filling positions seem likely to continue driving wages higher, and those higher labor costs could be making their way into prices.

By the time it is done with tapering, the risk is that the Fed might no longer be debating whether it should start lifting rates, but how much it should raise them.