The Trump Presidency Could Hammer Global Growth Here's What The UK Could Do

(MENAFN- The Conversation) Donald Trump's victory in the US presidential election has brought big questions about what it means for Nato, Ukraine, the Middle East and, of course, global trade. Faced with the threat of protectionism, and outside the EU, the UK will have to make some tough choices.

Trump was chaotic and ego-driven when he was last in the White House. And despite becoming a convicted felon since leaving office, there is little indication that he has mellowed.

On “day one” , he says he will close the border, launch mass deportations and immediately impose tariffs on Mexico, the US's largest trading partner . He is dismissive of geopolitical tensions and has doggedly promoted an“America first” message.

This is concerning for those who worry about international conflict or the global economy. When he is sworn in as president in less than three months, Trump will discover a more volatile global landscape than in 2020. The new president could make an already dangerous world more dangerous.

There are economic implications too. Trump is no free market Republican in the mould of Ronald Reagan. His populist message to his supporters on the US economy amounts to old-fashioned protectionism: slapping tariffs on global competitors.

Aside from Mexico, which he has said will pay 25% on its exports into the US, Trump has in his sights China, which he claims will see a whopping 60% tariffs imposed. This popularist protection of domestic industries would mean longer-term damage as escalating trade wars and slower global growth ultimately hurt American business, jobs and inflation – irrespective of the might of the US economy.

That is one reason why Trump might be more restrained in office than his campaign rhetoric suggests. After all, tariffs from his last presidency remain in place and President Biden was not shy at adding to them on Chinese electric vehicles, batteries and solar cells. As such, America is more protectionist today than it was back in 2016.

But the threats are being taken seriously around the world, including in Whitehall where ministers are reportedly “wargaming” how the UK might respond to US protectionism.

Despite the damage caused by Brexit, the EU remains Britain's biggest trading partner, representing about 40% of UK exports . But the US is the UK's largest trading partner as an individual country, accounting for about a fifth of all exports and worth more than £190 billion a year. This raises the stakes economically and politically.

In her recent budget , chancellor Rachel Reeves made some unpopular decisions to tackle public finances and made clear the mission of the new government is to strengthen economic growth. This is essential given the UK economy is just 2.9% bigger today than it was before the pandemic, in contrast to the US which has grown 10.7% .

But analysis from the independent research organisation the National Institute of Economic and Social Research was a blow to Reeves. It forecast that the imposition of even 10% tariffs would hammer UK growth from an already weak 1.2% next year, to a derisory 0.4% . This would be accompanied by an inevitable rise in unemployment and prices.

There is speculation that even if Trump is serious about a new protectionist regime, Britain could be spared . But nonetheless, the unpredictability of the incoming commander-in-chief is focusing minds in the UK.

The EU single market is the second-biggest economy in the world , and Brussels will be in a powerful position to retaliate in any trade war with the US.

This represents a political dilemma for Britain. It invites prime minister Keir Starmer to join the EU in imposing retaliatory tariffs on Trump's America and champion free trade in Europe.

Brexit has made Britain poorer by £140 billion and damaged exports to the tune of 17% . But the power of the EU is the obvious buffer against trade threats posed by Trump.

Starmer has made considerable efforts since becoming PM in July to “reset” relations with the EU. He has been at pains to make the case for the UK in Brussels (at both the European Commission and Nato HQ), New York and Washington. The big test of leadership will be the decisions he now takes and whether he is willing, finally, to make the case for Europe at home.

In terms of bang for your buck and longer-term economic stability, re-establishing ties with the EU is in Britain's financial interest, though it remains sensitive politically.

Back in February, I speculated that while Britain would use the general election to put a period of disruptive culture war politics behind it, across Europe and the US there was an appetite for fresh populism and easy solutions to complex problems. This is now happening, in a series of recent European elections, extended by the recent collapse of the governing coalition in Germany .

And the perspective shift in Washington is that the president-elect is no supporter of Nato, no fan of Ukraine and no sentimentalist about Europe. Trump's victory has only emboldened populists like Nigel Farage in the UK, Marine Le Pen in France and Viktor Orbán in Hungary, who see opportunities to stoke division and capitalise on the pain caused by rising living costs.

With so many western leaders now embattled, Starmer will be the only leader of a major democracy who is likely to still be in office at the end of Trump's term in 2029. While there are new challenges to step up to internationally, Starmer's hopes of a second term at home depend on restoring trust in politics and economic prosperity up and down the country.

MENAFN12112024000199003603ID1108879172