When a senior figure in the government called the White House on Wednesday morning to find out how bad Donald Trump’s tariffs were going to be for Britain, information was scant. Even Trump’s aides were in the dark about what he would decide.
At 9pm that evening, Sir Keir Starmer sat down in 10 Downing Street and watched the television, just like the rest of us, to discover what the US president had in store. The blanket tariff of 10 per cent on imported British goods was half what Trump slapped on the European Union — but they still wrecked the government’s economic calculations just one week after the spring statement.
“The president thinks he has given a ‘friends and family’ deal to Britain — and in comparison to others, he has. There are American allies who have been whacked by tariffs,” said an official. Less sanguine colleagues wonder: with friends like these, who needs enemies?
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Crisis conference call
Downing Street and the Treasury say no full-blown impact assessment has been conducted but the tariffs are expected to squelch growth, wipe out Rachel Reeves’s budget “headroom” and lead to thousands of job losses.
“The world is a lot more interconnected than it was the last time there were tariffs like this. But even if we had zero tariffs, US and EU having tariffs against each other is bad for a British economy,” said one of those who has seen the work that has been done. The Office for Budget Responsibility (OBR) calculated the week before that a global 20 per cent tariff would knock one percentage point off GDP.
When Trump had finished speaking, Starmer and his senior aides held a crisis conference call to agree their approach and sign off lines to take for the media in time for the 10 o’clock news. It was a formality. They had already decided, unlike the EU and China, not to react in a confrontational manner.
Reeves assembled her team of senior aides — Katie Martin, Lord Livermore and Ben Nunn — the next morning and outlined her plan. “Rachel has three priorities,” one said. “First is getting a deal [with the Americans to lower the tariffs further].
“The second is: how do you support the sectors which are vulnerable and work out what they need? She has been having lots of meetings and calls over the last few days.” These have focused on farmers and other food producers and the car industry — 10 per cent of Britain’s US exports are cars. There are also concerns about the vulnerability of pharmaceutical firms.
But as a Treasury adviser pointed out: “Frankly, there’s no sector of the economy that it won’t be impacted.”
Thirdly, Reeves is thinking about the implications for the next four or five years and the argument she needs to make to the country. This will be key to the chancellor’s credibility, since she is already expected to have to raise taxes and cut spending further in the autumn budget, due in October.
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Going for growth
On the basis that “you should never waste a good crisis”, Starmer and Reeves plan to make a series of announcements this week going hell for leather to boost economic growth. Ministers will announce an easing of regulations on electric car manufacturers and bring forward parts of the government’s industrial strategy.
Reeves is also due to hold an “economic and financial dialogue” with India on Wednesday to try to hasten a trade deal with the government in New Delhi. Her message to the Indians will be: “We’ve got to get serious about this now.” Efforts are also being made to secure a new deal with Australia.
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Nick Thomas-Symonds, the cabinet office minister responsible for negotiations with the EU, has been in touch with his European Commission counterpart Maros Sefcovic, as has chief negotiator Michael Ellam. They want to make progress ahead of a UK-EU summit on May 19.
On April 21, the chancellor will fly to Washington for the spring meetings of the International Monetary Fund (IMF), likely to be a time when the world’s big economies take stock. This is when Reeves is expected to make her landmark speech.
Starmer will set out the government’s big argument on Monday, when he plans to declare that globalisation has failed people. While he will argue that tariffs are the wrong response, he intends to show that he understands Trump’s economic nationalism and why it is popular with voters who have seen no tangible benefits to their quality of life from free trade and mass immigration.
In a meeting with his senior aides, including the chief of staff, Morgan McSweeney, the prime minister said: “Globalisation doesn’t work for a lot of working people. We don’t believe trade wars are the answer. This is a chance to show that there’s a different path.”
A Downing Street official explained his thinking: “Trump has done something that we don’t agree with, but there’s a reason why people are behind him on this. The world has changed, globalisation is over and we are now in a new era. We’ve got to demonstrate that our approach — a more active, more reformist Labour government — can provide the answers for people in every part of this country.”
Path to reindustrialisation
There are strong echoes here of Lord Glasman, the leading thinker of the Blue Labour movement, who is influential with McSweeney and Starmer. Glasman recently told The Sunday Times that Labour can learn a lot from Trump about patriotism “and not being apologetic about loving your country”.
He advocates a post-Brexit path that embraces reindustrialisation and building up the defence industry, which will be a feature of the upcoming defence and security review. Glasman criticised the frictionless trade and free movement of capital that has been a feature of British political thinking from Margaret Thatcher to Rishi Sunak. “Suddenly Trump’s been re-elected. It’s tariffs, it’s re-industrialisation,” he said. “The world has changed.”
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In No 10, they believe Starmer’s cautious and polite approach to Trump has paid key dividends that will, relatively speaking, benefit British voters. This is a view shared by influential Americans, who think the prime minister has not had the credit he deserves for avoiding the worst tariffs.
A senior US official said: “The UK’s willingness to engage proactively and in a positive spirit and constructively with senior people in Washington resulted in the lowest possible tariffs for the United Kingdom. That is an achievement of consequence. Had there not been that engagement, it is quite likely that the UK would have got caught up in the higher tariff rates that have been applied to the EU.”
Jonathan Reynolds, the secretary of state for business and trade, led the team that talked to the US trade representative Jamieson Greer, while Varun Chandra, Starmer’s business adviser in No 10, tackled the US commerce secretary, Howard Lutnick and Lord Mandelson, the British ambassador in Washington, worked the White House beat. US sources said that Mark Burnett, the former Apprentice producer who Trump has made an envoy to the UK, also played a “super-important role in all of this”.
So far the discussions have focused only on a tariff-mitigation deal rather than a more sweeping trade agreement. “When Trump starts looking at Britain again, there will be the possibility of a wider economic agreement than the tariff deal we have been discussing,” one of those involved said. “Both countries would benefit from a deeper agreement — one rooted in new technology sectors rather than traditional manufacturing.”
Starmer’s team believes Trump’s team wants to do a wider deal but has no idea when that might happen, for the simple reason that it is in the hands of one man. “The difficulty has quite often been knowing who had a negotiating mandate on the US side. Sometimes it was commerce, other times [the trade representative]. But there is and only ever will be one man who calls the shots and that’s President Trump. He is completely master in his own house.”
Benefits of disruption
The big question is whether all this diplomacy and the securing of lower tariffs will help Starmer politically. While many in Westminster have admired the PM’s diplomacy, Trump is hugely unpopular with British voters, and other leaders — including Mark Carney in Canada and President Macron in France — have seen their polling numbers soar by publicly criticising the US president’s actions.
One pollster, with close links to Tory high command, said Starmer and Kemi Badenoch, the Conservative leader, should go on the attack. “If this Labour government thinks it’s going to get any political dividend by sucking up to Trump and getting a crap deal, they’re clueless. It’s not as if lower tariffs will make us better off; we will still be worse off and voters won’t thank him. Starmer could have made this a political moment and said it was outrageous and he could be at 40 per cent in the polls.”
Labour is polling only in the high twenties — and the risks of antagonising patriotic, northern working-class voters is clear in the latest Polaris “super-poll” seat projection. It shows Labour losing 100 red-wall seats to Reform at the next election. That would leave Starmer’s party on just 218 seats, the Tories on 136 — one ahead of Reform — and the Lib Dems on 70. Neither left nor right could command a majority.
James Johnson, co-founder of JL Partners, which conducted the poll, said: “If you think international politics feels unstable at the moment, try a parliament that looks like this. The UK would be headed for serious uncertainty.”
Some in Starmer’s team hope that Trump, having seen trillions wiped off world stock markets (whose buoyancy he used to cite as evidence of his success as president), will change his tack. They believe he was surprised by the market reaction and the scale of the Chinese retaliation of 34 per cent tariffs on American goods.
But they also see a White House that believes his disruption of the international economic system will produce benefits in the long run. One who has dealt with Trump’s team in the last week said they were “on a high” even as the markets tanked. “Trump’s constant refrain has been ‘short-term pain for long-term gain’. He says markets will adjust and understand the sense and rationale of what he’s doing. In time, everyone will better off, and the markets will be okay.”
Few in the City are so calm. “Everyone’s terrified,” said one adviser to leading businessmen. “No one thinks that Trump will u-turn. They also realise that the EU and China, the biggest players in this, are going to go full retaliatory.”
Starmer and Reeves are hitting the phones to other world leaders and finance ministers this weekend. The PM will spend the first week of the Easter recess in Downing Street before taking a few days off. Their political futures, like the world economy, are now in the hands of one man. They know they cannot beat Trump, so for now they have decided to join him in using the moment to push their own reforms. But they also know they may only learn of the next big development from watching television.
