How a Trump presidency could blow the British economy out of the water

What will Keir Starmer be most worried about as he contemplates a second Donald Trump presidency? Until recently, Ukraine has been top of the UK government’s list, given the prospect Trump might unilaterally try to end the war – and not necessarily on terms favourable to Ukraine.

However, it is now dawning on UK ministers that Trump’s threat to impose 60 per cent tariffs on imports from China and 10 or 20 per cent on those from everywhere else including the UK, could inflict huge damage on the British economy. There are growing fears the UK’s trade with its biggest single export market in the US will be hit hard.

Britain could also suffer collateral damage in a US-China trade war, given the impact on supply chains. The Treasury is putting a brave face on it, hinting that the government would try to talk Trump out of damaging a natural partner and reminding him a global trade war would be bad for everyone. Some officials hope Trump’s threat is a bargaining chip to get China to reduce its state subsidies; they point out he didn’t do all he said he was going to do in his first term.

However, the Department for Business and Trade is alarmed and under growing pressure from business leaders to act – possibly by imposing retaliatory tariffs on American imports. The EU, the third big trade bloc along with the US and China, is drawing up retaliatory measures. One option for Starmer would be to advertise the UK’s post-Brexit freedom by not hitting back, given that Trump doesn’t like the EU. But British industry figures fear the much-trumpeted “special relationship” would count for little if the new president is galloping into a trade war on his high horse.

The forecasts in last week’s Budget already showed lower UK growth lower than expected after an initial two-year boost, and nowhere near the 2.5 per cent Starmer wants. If growth is even lower as a result of Trump’s tariffs, Rachel Reeves’s Budget arithmetic could be blown out of the water. She already has only a historically small amount of headroom against her revised fiscal rules, so a setback could mean further tax rises (which she insists she doesn’t want) or a tighter squeeze on public spending that could put her “no return to austerity” promise at risk.

Starmer will have other headaches. How will the transactional Trump handle the special relationship with the UK? How special can it now be when some diplomats fear Trump will take America back to an isolationist pre-Second World War position?

True, he has family links to Britain and loves its royal family. So, Starmer has cards to play. He and David Lammy, the foreign secretary, knew this moment was likely to come even as they wished it would not. They have worked hard to build bridges with Trump and senior Republicans – in Lammy’s case, including JD Vance, who will become vice-president.

Despite that, Lammy will be feeling uncomfortable today. He will never know whether the unpredictable Trump will suddenly recall Lammy’s previous scathing criticism of him if it suited him. Lammy once called him a “racist KKK,” a “Nazi sympathiser”and “misogynist”?

Yet Lammy was present at Starmer’s dinner with Trump at Trump Tower in September, when the next president reportedly told the prime minister: “You’re a liberal, so we won’t always agree but we can work together.” On Nato, Starmer can flatter Trump by telling him he was and is right to say European nations must foot more of their own security bills rather than relying on the US.

The UK has a good story to tell here and Starmer could win brownie points by setting out a timetable for raising its defence spending to 2.5 per cent of GDP. Starmer allies believe the complaint that Labour “interfered” in the US election by aiding the Democrats was a confected storm in an egg cup that will now be forgotten.

However, Starmer and Trump are chalk and cheese: the former committed to international law and multilateral institutions, the latter likely to be unconstrained in a second and final term; this time, his team will have more people who share his worldview than in his first. Elon Musk could be a barrier to a good US-UK relationship.

He has fallen out with Starmer and is tipped for a role in a Trump administration; even without that, he will be an influential voice in the incoming president’s ear. In contrast, how much sway would Starmer have if, for example, he pleaded with Trump not to give Israel the green light to attack Iran? Further turmoil in the Middle East could see an oil price hike – another economic blow from which the UK would not be immune.

Then there are the unexpected bombs – when Labour politicians condemn Trump’s controversial actions or outrageous remarks. It is bound to happen. Starmer will have to keep above the fray and live up to his mantra of putting “country before party” as he tries to make his personal relationship work.

Only one thing about Trump is predictable: dealing with him will be a nightmare, one that has now come painfully true.