Good afternoon. Any minute now Sir Keir Starmer will be meeting with Donald Trump in Washington DC for a diplomatic encounter that is being billed as the most important since the [insert preferred hyperbolic historical benchmark here] . . . second world war.
Trump may thrive on the drama, but listening to British businesses this week at a series of conferences and roundtable meetings, the overwhelming concern was the impact of the uncertainty that flows from the US president’s scattergun announcements on trade.
BritishAmerican Business (BAB), a lobby group that champions the transatlantic trade corridor, held a conference in London on Tuesday to try to thrash out the challenges that lie ahead.
But with so little clarity about how far Trump will follow through in his threats — the recent ‘will-he-won’t he’ dance over tariffs on Mexico and Canada being a case in point — there was little in the way of definitive answers on the administration’s trade policies, or strategies with which to mitigate them.
“We’re worried about the fire hose of executive orders and the chaos every day,” said one financial services executive. “That’s a big headwind to investment and business confidence. What we’d like to see is a more stable plan.”
For now, the only certainty seems to be more uncertainty. As a business services provider concluded, with a sigh: “Whatever the outcome [of Trump’s various tariff investigations], it is going to raise costs at a business level.”
When does a trade war become a culture war?
Like every other country, the UK must await the outcome of the Trump-ordered investigation into “reciprocal” trade and tariffs. This goes far beyond mere tariffs, sweeping up “any other practice” that in the judgment of the US “imposes any unfair limitation” on US trade.
That includes VAT, carbon trading schemes and digital services taxes, but also much broader policy measures that protect intellectual property, data privacy and free speech.
Specifically, the White House has said the review will include any measure that “incentivises US companies to develop or use products and technology in ways that undermine free speech or foster censorship.”
As Vice-President JD Vance’s extraordinary “threats from within” speech in Munich made clear, things have the potential to quickly get politically toxic domestically if the price of avoiding a trade war is being seen to bow to elements of the American culture war.
If the US intends to use its trade muscle to dilute the privacy and internet content moderation protections that British and European citizens hold dear, in part to support Maga-aligned political parties, that could make “triangulation” strategies with Trump intensely difficult.
Still, for now, Starmer will be working hard in Washington to differentiate the UK from the EU, although the White House fact sheet is very clear the “reciprocal” trade measures review extends to practices in “the European Union or United Kingdom”.
Whitehall is privately pessimistic about potential carve-outs. One insider tells me that early contact between British ministers and Trump administration officials has been far from encouraging when it comes to special pleading on VAT or auto tariffs.
Looking on the bright side
But for now, the official UK line remains optimistic based on the historical resilience of the US-UK trading relationship, which has survived all manner of ups and downs over the decades.
“The Venn diagram of shared interest is broad,” said a government official sent to reassure delegates at the BAB conference, adding there was a “strong case to make in terms of tariffs and bigger trade and investment opportunities” for the US in the UK.
BAB’s chief executive Duncan Edwards broadly agrees, but also cautions against a naive expectation that Trump and his acolytes don’t mean what they say when it comes to taking measures to rebalance US trade.
The belief that the US is now getting a raw deal from a global trading system set up in an era when it ran trade surpluses with the rest of the world — hence its low tariff barriers — is deeply held, says Edwards, adding there is a real determination to “fix” it.
“The [administration’s] argument is that, if you want to manufacture elsewhere, that’s fine, but there will now be a cost to that in the form of a tariff. That’s a coherent world view, even if we don’t like it, and I don’t think that’s going away,” he told me after the conference.
Accordingly, Edwards says Starmer shouldn’t try to argue directly against the administration’s beliefs on trade, but rather acknowledge the justice of some US grievances and then land the argument as to why the UK shouldn’t be seen as part of the problem.
“If I was giving Starmer advice, I think putting up a wall [with Trump] just won’t work,” he adds. “I think it would be better to say ‘we get where you’re coming from’, but then remind him of the facts of the US-UK relationship.”
Edwards lists those key “facts” as follows:
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The UK doesn’t run an overall trade surplus with the US;
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There’s no wage arbitrage, at least in manufacturing, that causes jobs to leak from the US to the UK;
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The UK has a genuinely open economy and low tariffs;
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The UK is no longer in the EU, which does run surpluses with the US;
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And UK companies like AstraZeneca, GlaxoSmithKline, BP and Shell are massive investors and taxpayers in the US.
That, concludes Edwards, is the case for the UK to argue to be given enough breathing space to develop a package of mutually beneficial deals around digital and defence that would, in a phrase being attributed to new ambassador Lord Peter Mandelson, be “Mega” — and Make our Economies Great Again.
It will be a delicate dance. The first round begins today.
Britain by numbers
This week’s chart comes from a striking new report by the Boston Consulting Group on a coming UK infrastructure investment boom that brings both good news and bad news for the government.
On the upside, the report finds that the UK is about to witness an increase in capital investment not seen for 75 years, driven in large part by the green transition.
The BCG estimates that between £700bn and £900bn is currently planned to be spent on capital investment in the UK over the next five years — more than double the amount spent between 2020 and 2025. As the report notes, that’s “a huge and rapid uplift”.
The downside risk is that — without serious planning, rapid investment in skills and targeted changes to immigration policy — the UK will be unable to fully capitalise on that wave of investment.
“Too few have asked whether our supply chains can actually deliver this investment. As it stands, the answer is ‘no’”, the BCG warns.
Briefly, while it is true that the market will deliver skills in the longer term, if a permanent pipeline of demand is created, in the short term it cannot.
In critical areas such as construction, welding (see chart) and linework (necessary to string up the high-voltage cables needed for the net zero transition), the government needs to intervene.
For context on the grid expansion challenge, the BCG calculates that the level of electricity network capital expenditure in the UK rose by 3.5 times from 1950 to 1965 — the last big expansion of power lines. But that from 2015 to 2030, it will rise by up to seven times.
The fix is more training (a national skills programme in strategic sectors, but this takes time), more visas (to make up shortfalls in the interim), and careful management of the pipeline of projects to avoid bottlenecks and cannibalisation of the skills base.
There’s still time to address these challenges, the report concludes, but the government needs to get on with it. If not, “the result will be delays, cost inflation and a poor allocation of resources leading to missed opportunities.”
The State of Britain is edited by Harvey Nriapia today. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here.
