What does Trump mean for the UK?

The clue is in the name but in the world of communications we are primarily concerned with what people say (and others hear), perhaps disproportionately so. That said, when it comes to the febrile animal spirits of the financial markets, what people say (particularly important people like the president of the USA) does affect how people behave, or at very least the mood of the markets. A Trump presidency, therefore, is a hard one to unpack from a markets communications perspective. Trump is, at heart, a provocateur: he says he will do a lot of things that don’t necessarily happen, he changes his mind on a whim and makes startling policy statements, seemingly based on fake news and memes from dark corners of the internet. This has led many commentators in recent months to sensibly conclude that we should pay less attention to what he says and more to what he does.

From an economic perspective, the big question that is on everyone’s minds is ‘tariffs’. Last year Trump referred to ‘tariffs’ as “the most beautiful word in the dictionary”. I am no economist, but history has shown that, in trade wars, there are no winners or, anyway, very few. And, whilst his brand of protectionism or neo-isolationism might play well to parts of the US electorate emotionally, it is unlikely to yield positive outcomes for the rest of us. The spectre of huge trade tariffs has made the UK markets deeply uneasy. Goldman Sachs recently cut its 2025 UK growth forecast at the end of last year to 1.2% from 1.6%, citing tariffs as the primary factor behind the downgrade. Even if Starmer can insulate the UK from the impact of direct tariffs, the UK is still a globally focused economy and tariffs will likely make everything a lot more expensive.

Other commentators such as the National Institute of Economic and Social Research calculated that the impact of higher tariffs on the UK economy would result in a 0.8% drop in GDP growth, resulting in a £21.5 billion loss to the economy by 2025. It also said tariffs would push inflation up, which would keep interest rates higher for longer. This in turn would raise the cost of government borrowing and negatively impact public and private investment (and sentiment) in the UK. Others have argued that the impact of tariffs is likely to be limited by the fact that the biggest proportion of our exports are ‘services’, which would, in all likelihood, be exempt from tariffs. We also have a trade deficit with the US so we are far less of a target than China (which has a big surplus).

The problem is that nobody really knows. Does the special relationship mean anything to Trump? Could Trump use some anti-UK fake news as an excuse to punish the UK in some hitherto unknown fashion? Will the band of billionaires Trump has surrounded himself with have an effect on his economic thinking and policy making? Many of them presumably rely on relatively healthy and functional global markets for their wealth and valuations. It could be that we end up with a more classical republican, deregulated, business-first Government that is a boon to the US economy and that Trump’s less ideological, more transactional approach to diplomacy will lead to a more stable world with fewer international conflicts - let’s hope so!  

What we can be sure of is that we are entering an era where Trump will be an intimate part of our economic narrative. It is therefore probably fair to say that we hear a lot of the bombast and rhetoric from across the Atlantic in the coming months and years and the worst thing we can do from a markets perspective is panic. So, for the time being at least, we should keep calm and carry on.