Donald Trump’s first, unintentional, favour to Labour since becoming president-elect has been very generous. People are being distracted away from last week’s Budget and its consequences.
The cost of borrowing in Britain has returned to a one-year high, roughly half a percentage point higher than it was at the end of September, when Labour’s plans to borrow and spend at record levels were only starting to be fully realised. But with all eyes on America, the continued fallout from Labour’s first Budget has become a secondary issue.
But while the Budget may be out of sight in the press, it’s not out of mind. The UK finds itself in an awkward spot, trying to convince investors it can make good on its borrowing plans. The Government needs all the friends it can find.
Might Trump be one of them? When it comes to the economy, the president-elect’s attitude towards business and growth could have some positive knock-on effects. But there are caveats.
The biggest hurdle is obvious: Trump’s pledge to ignite trade wars around the world. If Trump is serious about implementing taxes on imports – up to 20 per cent – then all bets are off. With the US acting as Britain’s largest export market – making up 22 per cent of all UK goods exports – we would suffer greatly, as would the global economy.
But these are not consequences America could shield itself from. The risk of recession – not to mention the significant hike in prices American consumers would experience – make this a very risky promise for Trump to make good on.
This is why Trump’s supporters – and indeed his confidants – are always reminding non-believers that the president-elect’s bark is bigger than his bite. His threats, especially on the economy, are just jumping-off points to bring to the negotiating table.
If Trump isn’t really planning a worldwide trade war, but more targeted taxes, might Britain be able to benefit?
It’s certainly a possibility. The UK, after all, is now a services economy – the kind Trump likes to do deals with. No one should get too excited about a formal UK-US free-trade deal (largely because the UK wouldn’t accept America’s terms, which would include changes to food regulations and more access to the agricultural industry).
But when dividing the world into trade adversaries and friends, a Trump-led US is more likely to look favourably on the UK than it is, say, on Germany, which will be competing with America on car exports.
Still, the most meaningful impact Trump might have on the UK economy is not any tax or deal.
Rather, it will be about the pressure to perform. America has pulled away from Europe over the past decade: setting itself apart as an engine of growth, while Britain hobbles along and the eurozone stalls. Keir Starmer may have promised the fastest growth among advanced economies, but he will now be in direct competition with Trump, who says he is serious about returning America to his economic glory days.
Meanwhile, Bidenonomics will be dismantled, leaving Rachel Reeves’s “securonomics” – which was loosely based on that US model – standing alone. The ability to be more nimble, more free, could reveal itself across major sectors – from banking to manufacturing. As Trump deregulates and liberalises the US economy, the consequences of heavy state intervention in Britain will be all the more clear, as it stands in direct contrast to America.
Of course, all this assumes Trump can pull off another economic miracle. There’s no guarantee, but based on Tuesday’s election results, it seems anything can happen.