The news overnight that Donald Trump has secured a second term in the White House sent shockwaves through UK politics. The implications for the UK economy, security and our political discourse may be significant. We will see over the coming months whether Trump’s “bark” is bigger than his “bite” or whether he is unleashed in his second term. In the meantime, these are some of the issues that are occupying the minds of the Cabinet and Government advisors today.
Getting personal?
We know that Trump is particularly prone to acting on impulse and creating problems for people who he feels don’t support him. Previous comments by the Prime Minister and the Foreign Secretary may well cause issues for the “special relationship”. In addition, recent comments by key Trump ally, and potential future US Government advisor, Elon Musk about the Starmer administration could further fuel animosity between the administrations.
We also saw during the campaign, the extraordinary decision of the Trump campaign to sue the Labour Party, accusing them of foreign interference after a LinkedIn post suggested they were sending staff over to campaign for the Democrats.
However, the Government have been making efforts to lay the groundwork for a potential Trump victory, working hard to try to build bridges. Both Starmer and Lammy attending what has been described as a positive dinner with the now President Elect at Trump Tower last month.
The Foreign Office will now be keeping a close eye on any comments coming out of team Trump in the coming weeks to try to ensure that the two administrations can work together.
It’s the economy, stupid!
A key focus for the UK Government will be on Trump’s pledge to impose 20% tariffs on all imports into the US. They will be attempting to secure a trade deal to exempt the UK from those tariffs. The Government will no doubt be leaning in to Trump’s fondness for Scotland, and could look to use the Scotch Whiskey sector as a key case study of the impact of tariffs.
Regardless of whether a deal is secured, the disruption to global trade that such tariffs, and the inevitable retaliatory tariffs put on US exports, will be significant. This will undoubtably be a blow to the Government’s growth agenda, which is so central to everything they are attempting to achieve in office.
Threat to Security?
Many of those voting for Trump did so because they wanted more government money to be spent domestically as opposed to foreign priorities, such as Ukraine. During the campaign, Trump boasted that he could stop the war in Ukraine in one day. He has also threatened to pull out of Nato and expressed dissatisfaction of the US being the guarantor of European security while other NATO member states fail to meet their financial commitments.
The assumption is that he will pull most, if not all, military support for Ukraine. The US has provided well over $100bn since Putin’s invasion, a figure that Europe wouldn’t be able to cover on current military spending.
If, for four years at least, Europe can no longer rely on the US for its security, defense spending will have to increase significantly, not least in the UK. Rachel Reeves’ Budget, which is being voted on in parliament tonight, increases defense spending by £3bn, but much of that is spent on restocking what has been given to Ukraine. There is an ambition to reach 2.5% of GDP spent on defense by 2030 but that may have to go up considerably if the US pulls its support.
Where that money will be found in the current fiscal environment will be a significant challenge to Government.
Drill baby, drill!
Trump has pledged to reverse many of the green policies introduced by the Biden administration and to back new oil and gas drilling in the US. This could reduce global fossil fuel prices although much of that benefit may be eaten up by tariffs.
The Labour Government here aren’t going to change their approach to green investment, it is central to their vision of future prosperity. What may result from this election is private investment in green industries leaving the US and instead looking to invest in Europe and the UK.
The Inflation Reduction Act in the US saw investors flood into the US market and the removal of that support will provide the UK Government the opportunity to promote the UK as the best place to invest in green industries. This election result could well assist them in making that case.
Populist politics?
The Government’s answer to the populist threat is to show the British people that centre-ground mainstream politics can deliver for working people. This will be under strain now. Regardless of whether or not the UK can secure an exemption from US trade tariffs, the impact on our economy will be significant.
Without growth, it will be particularly hard to deliver the funding for long term improvements in public services like the NHS and education which the public are expecting.
If they fail to deliver strong public finances and improvements to services, the pressure from the extremes of politics may well be very attractive for many and could see another realignment in UK politics.
Electorates across the West are becoming more and more volatile, and are punishing incumbent governments who do not deal with cost of living pressures. Labour MPs will be nervous that global events could make their ability to deliver more difficult and the political results could be stark.
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