Should the world care about a US government shutdown?

Intrigue’s dispatch is coming to you this morning from inside a US base in Germany (opportune time to see friends abroad). Surrounded by the Alps, Washington feels a world away, yet all the local chatter has still been about the first US government shutdown in more than six years. 

Between jokes that the US now has a ‘volunteer’ military (troops still show up but risk missing a paycheck), and assurances the commissary is still in fact open, our big question remains — should folks outside the US care about another shutdown?

Let’s answer that by timeframe, shall we? Most shutdowns have only lasted…

1. 🤏 Just a few days

If we see a repeat of that, the international impact might be pretty limited…

• Embassies and consulates remain open. Diplomats keep working, but stuff deemed non-essential gets paused (think cultural events and official LinkedIn updates — we definitely endorse declaring LinkedIn non-essential btw). 
• Most immigration services run on a fee-based structure with support from the above diplomats, with as little as 1% of US Citizenship and Immigration Services workers hit by shutdown furloughs. So any impacts here should be limited.
• The markets don’t seem to be too bothered either, instead hitting fresh records, while Treasury’s Office of Foreign Assets Control is still beavering away delivering new hits on Iran’s weapons procurement channels. 
• Oh, and if you have a banger trip booked to Vegas, TSA will still be there kindly instructing you to take that MacBook (with Intrigue stickers) out at security. 

So, if this whole drama gets cleared up in a few days? Folks from Tokyo to Tunis can safely tune it right the heck out. But if it drags on for…

2. 📅 A full week?

• Paychecks start to go missing for those government workers above, and you’d be amazed how much productivity can drop when landlords come a-knocking.
• Customs workers, now processing ~$100M in tariffs a day, will mostly continue unaffected, meaning key trade lanes and terminals keep operating. But back-office furloughs might start to slow down some documentation and compliance.
• Tourists can still visit most national parks, but international numbers typically drop as pics of unattended trash-piles and restrooms go viral.
• And immigration services can start to feel the heat, though more via back-end functions like court hearings rather than front-facing services or enforcement.

So, as this thing drags through the first week, the impacts gradually start to accumulate, until you get yourself…

3. 🗓️ A prolonged shutdown

Three of the last four shutdowns (1995-96, 2013, 2018-19) have lasted weeks. The last one (2018-19) lasted five. If we see something like that again, you can expect…

• Markets will get the jitters, eying US treasury bonds for any offloading — that could reflect foreign governments questioning America’s safe-haven appeal, with (historically short-term) ripples onto reserves and rates. That’ll be exacerbated by…
• Economic data delays, as key data agencies are typically not classified as essential (even the SEC halts registrations). That means markets will start to fly blind amid a backlog of inflation, growth, retail, housing, and jobs reports. And…
• Of course, allies will start to feel it, whether it’s delays in defence export approvals or the powerful Committee on Foreign Investment in the US, or just a sense key US players in tariff talks are too busy yelling about the shutdown.
• And let’s not forget those foreign foes, who are already milking this for public confirmation that the US is a declining power beset by chaos and conflict.

So those jokes on American bases abroad will probably start sounding a whole lot less funny the longer this saga drags on.

Intrigue’s Take

You could look at all the past shutdowns, or the chaos around Covid, and conclude that things all tend to stabilise sooner or later. The US is resilient.

But that depends on whether this time is different. And there are reasons it might be:

• Polling all points to more polarisation, raising the prospects of a longer shutdown
• President Trump is warning of more hard-ball tactics like permanent layoffs
• Markets are now more data-dependant given all the international uncertainty
• And this is all playing out against weaker US credit (Moody’s downgrade), plus…
• There are now more wars around the world than last time.

Either way, the longer this drags on, the longer the rest of the world wonders what a divided and gridlocked America can still do for (or against) it.

Sound even smarter:

• The main disagreement on the Hill is around healthcare spending.
• Secretary of State Marco Rubio argues it’s “jeopardizing our national security.”