The chancellor Rachel Reeves will use a keynote speech this week to promote free and open trade between nations as a cornerstone of UK economic policy, putting the Labour government on direct collision course with president-elect Donald Trump.
Reeves will use her first speech at the Mansion House – an annual showpiece for the chancellor – to outline a post-budget plan to “go for growth”. But as the UK government scrambles to respond to Trump’s emphatic victory, and the challenges it poses for Britain on vital issues of economic and foreign policy, the chancellor is expected to be clear that she will take the fight to Washington in defence of free trade.
The issue is fast emerging as a major test for relations between the incoming Trump presidency and London, along with their widely differing approaches over continuing support for Ukraine’s war with Russia. On Friday Trump – who has promised to slap high tariffs on all imports into the US – wasted no time in asking the arch-protectionist Robert Lighthizer to return as US trade representative when he takes over at the White House again in January.
Shortly before last week’s presidential election Lighthizer blamed free trade for the loss of domestic manufacturing and linked this to criticism of America’s huge trade deficit. Such an appointment will cause further unease in the UK government and increase fears that Trump will follow through his threat to impose tariffs that could be hugely damaging to the UK economy.
Last Wednesday Goldman Sachs cut its UK economic growth forecast for 2025 to 1.4% from 1.6%, citing potential higher US tariffs. The National Institute of Economic and Social Research said a trade war over tariffs would lower already sluggish UK growth by 0.7% and 0.5% in the first two years of Trump’s second term in office.
Writing in today’s Observer, the former UK ambassador to Washington Kim Darroch says he expects Trump to carry out his threat of tariffs. Describing the implications for Britain’s relations with not just the US but also the EU, Darroch says: “On tariffs I expect the exact opposite of a mere threat.
“I think Trump will impose tariffs on all US imports immediately and say ‘If you want them lifted, offer me something to rebalance trade’. The EU will almost certainly retaliate; and the UK will face a difficult decision. Do we match EU retaliatory tariffs? Or do we seek a bilateral deal, like a free trade agreement?
“I think an FTA would be on offer from Trump as in 2017: but the top US demand, as was the case then, would be unrestricted access to the UK market for the low-cost products of the US agricultural sector, hormone treated beef and chlorine-washed chicken included. So the stark choice would be: side with the EU or sacrifice our agriculture.”
On Ukraine, Darroch points out that if Trump backs a peace deal that looks like defeat for Volodymyr Zelenskyy, with Russia keeping territory it has captured and Ukraine having to promise never to join Nato, the UK would again be forced to choose between the EU or Washington.
“So another difficult decision for the prime minister: try to rally Europe to reject US ideas and increase support for Ukraine, or pack up our tents, accept defeat and go home?”
Trump’s dramatic triumph has prompted intense debate in Westminster about the best way for Keir Starmer’s administration to respond to such an unpredictable figure in the White House.
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Former UK ambassador to Paris and the country’s first national security adviser Peter Ricketts said that Starmer should avoid appearing “too needy” or being too keen to schmooze him. “I think I would say make your contact with Trump count rather than just trying to be first to get through the White House door, which has rather been the tendency of some of your predecessors. The danger of that is that you expose yourself to embarrassment when he does something you profoundly disagree with.”
Also writing in today’s Observer Peter Hyman, who has advised both Tony Blair and Keir Starmer, said Labour needed to learn lessons about why Americans voted for Trump because it could fall victim
to a similar phenomenon in the UK. Too many people, he writes, regarded Trump supporters as members of the “deluded masses” who were too stupid to see he was a monster, while in fact many had good reasons to vote for him.
“The truth is the Democrats lost people – head and heart. They failed at being good technocrats (the head) with high inflation and open borders. And failed at telling a story in which struggling working families could feel seen and heard (the heart).
“This is now the challenge for the Democrats in the US fighting to win back power, and Labour in the UK trying to make a success of their victory.
“Trump’s win could be a moment, like Thatcher’s victory in 1979 where the old rules of politics are turned on their head and where the building blocks of a new progressive project need to be rebuilt brick by brick from first principles.”