Trump 2.0: Buckle up; trade is back in the spotlight

The Trump trade train is back, and this time, the ride is bumpier than ever.

Indeed, as SEC Newgate stated on the front page of the FT last week, Donald Trump’s ‘economic warfare’ net is growing exponentially, with foreign and tax policy thrown into the mix to extract concessions on a vast range of issues that matter to US President #47.

This time, however, those around him have had four years to prepare the ground for going to bat with foreign countries, and it shows – they’ve done their homework if the trade policy paper released by the new White House administration is anything to go by. While tariffs on Day One may not have been issued by Executive Order fiat as anticipated, there is plenty of mooted intent about the direction of travel.

A raft of potential investigations and legal bases for potential tariffs are contained in the “America First Trade Policy” document, serving as a reminder that while Congress may technically have control over tariff policy, much of it has also been passed to the President and Executive over the decades.

Reviews of US trade balances with foreign countries, unfair trading practices, national security issues and the unprecedented signalling of willingness to use legislation to apply tariffs in respect of “national emergencies” are among the measures outlined. Issues like the flow of illegal drugs and unlawful migration across US borders are explicitly cited, posing a challenge for Canada and Mexico, where extensive and tightly integrated supply chains mean even small tariff increases could have a rippling effect.

It's this willingness to leverage trade mechanisms to tackle foreign policy which poses such a distinction between Trump 1.0 and 2.0 – and could still see the UK in his sights given the concerns repeatedly expressed not only at his end but also by several members of Congress over the Prime Minister’s Chagos Islands deal with Mauritius. Worries over Chinese influence over the US/UK military base located in the islands is a surefire nexus of trade, security and politics that is likely to get the Donald going.

So while we may not end up with a universal US tariff increase affecting UK exports, and our trade deficit with the US in goods might ostensibly earn the UK a reprieve, foreign policy matters may yet prove a thorn in the side of Sir Keir Starmer’s attempts to play nicely with Trump and his administration.

Moreover, the new White House has also signalled its willingness to revive investigations into ‘unfair trading practices’ extending to unilateral tax measures taken by other countries. The UK’s Digital Services tax, along with a host of others across Europe, was originally in the frame for retaliatory US tariffs several years ago, before Joe Biden’s move to sign up to a global OECD deal on taxing multinationals cancelled out the need for these to move forward.

Now, after simultaneously pulling out of the OECD agreement, Trump’s trade policy proposals include a commitment to reviewing “extraterritorial taxes” against US corporations. This indicates that tax and trade policy are headed towards a collision course—and the UK may be in the frame once more.

It’s not all bad news, of course, as proposals also signal an intent not only to review existing US trade agreements but an intention to identify countries with which it can negotiate agreements on a bilateral or sector-specific basis. This may be good news for the UK, although much will depend on whether Labour in government want the pressure of a full-fat trade deal -including agricultural negotiations that British farming would baulk at and NHS drug pricing issues – or a smaller piecemeal deal to avoid US tariffs. And hanging over much of this is whether or to what extent Labour’s much-heralded EU reset ambitions could be affected by what the US wants out of the UK.

All in all, trade back is back in the spotlight -and how- for the next few years. Buckle up!