- The US and UK are natural allies in trade and defence policy
- Will Labour be willing to work with the Trump administration?
- The alternative is isolation, possibly even from the EU
In a recent edition of Southbank Sunday Brunch, just before Trump’s historic victory in the US elections, I offered a few thoughts about what it could mean for the “Special Relationship” between the US and UK:
In my opinion, Trump is extremely fond of Britain. He believes British culture and tradition had – and still has – a positive influence around the world. He will thus seek to keep the relationship strong.
It is even possible that, if Trump’s tariff goes ahead, that Britain will be at least partially and perhaps even entirely exempt through some sort of free-trade deal, which I believe Trump will likely offer. As a quid-pro-quo, Trump might expect Britain to help him wind down the Ukraine war and reinvigorate NATO, in order to deter any further Russian aggression in Europe on his watch.
So, I do not think Britain should fear a Trump presidency. Rather, it should be seen as an opportunity to improve ties with the US in both trade and defence policies. Let’s hope the current government doesn’t squander either.
Thus while some UK government officials might despair the election results from across the pond, I do believe that Trump’s victory could be a historic opportunity.
Labour must be aware that, while they hold a clear majority in Parliament, they were elected by only a minority fraction of the electorate. Indeed, Labour leaders must feel green with envy. Trump won a majority of the popular vote, not merely the electoral college. His coattails flipped the Senate.
Trump has the strongest public mandate of any US president for many years. Labour has only a weak mandate. Opinion polls for the new government have plunged since they assumed office, including most recently following the raft of tax increases in the budget.
Labour is also hardly alone being green with envy. Imagine how UK catering industry workers feel. Their employers’ National Insurance contributions are going up, scotching hopes for pay rises. Yet across the pond, Trump has promised to end the taxation of tips, which comprise a meaningful portion of catering industry pay. Trump has also stated that he will lower income taxes across the board, for all workers, rather than raise them. He has no plans to lower tax thresholds for inheritance tax or to change the tax status of pensions.
Trump has even said that he will explore the possibility of scrapping income tax altogether if it is possible to make up the revenue through tariffs or other forms of indirect taxation. While that may be unlikely in practice, the rhetoric is nevertheless reassuring.
The fact is, Trump’s anti-tax rhetoric is already embarrassing for Labour and is only going to become more so if he manages to follow through on at least a handful of the above.
Also potentially embarrassing is what I wrote above about Trump’s tariff proposals. If I’m right and he offers the UK a free-trade deal, are Labour going to shun it, preferring instead to cosy back up to Brussels, post-Brexit?
Speaking of Brussels, what are they going to do when Trump threatens them with tariffs? Given the dire state of the continental economy, are they at all prepared to enter into a trade war with the US? Might even Brussels feel the pressure to enter into some sort of deal?
After all, they’re now highly dependent on US liquified natural gas imports. And of course, for the foreseeable future, they’re going to remain dependent on the US military to deter Russia from further aggression in Eastern Europe.
No doubt, on assuming office next year, Trump will remind his UK and EU counterparts that they need to step up and provide more for their defence. The US will remain an ally, to be sure, but will demand a greater contribution from the other NATO members.
While Brussels might try to treat trade and defence as entirely separate issues, I doubt that Trump will see things the same way. In his mind, Europe has been “free-riding” on US defence spending in much the same way that he sees many countries “free-riding” on exports to the US. When negotiating on trade, defence may well come up as a topic. Is Brussels really prepared to have a falling out with Trump over both trade and defence at a time when its economy is dead in the water and the Ukrainian resistance to Russia is crumbling?
No, I don’t think so. Brussels will likely seek to do deals on both trade and defence. They just can’t go it alone without US support. Not now. These concerns become all the more immediate now that the German ruling coalition has collapsed. The next government is likely to shift to the right and have a Eurosceptical stance on multiple major issues.
The UK thus has a decision to make: take the initiative now and establish a good working relationship with the US on both trade and defence, or risk isolation from both the US and EU.
Notwithstanding Trump’s support for the “Special Relationship”, some Labour members might be inclined towards the latter course. Regardless, let us hope that they choose wisely.
Meanwhile, on the subject of Labour, I believe they’ve got something up their sleeve that’s going under the radar. I want to make sure you’re prepared – because one surprise government borrowing announcement could push our economy closer to the edge of a financial precipice. But when the panic starts, one group of people could get much wealthier. Find out how you could be one of them.
Until next time,
John Butler
Investment Director, Fortune & Freedom
