Starmer’s Free Trade Resolve Tested by Trump’s Zeal for Tariffs
(Bloomberg) -- Prime Minister Keir Starmer’s resolve to ease commercial frictions with nations from China to the US is about to be tested by a second presidential term for Donald Trump that could see the UK caught up in trade battles between global powers.
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Trump has threatened to slap a 60% tariff on goods imported to the US from China and as much as 20% on goods from other countries, a revival of the protectionist stance he took in his first term that could disrupt global trading patterns. In an effort to avoid those levies, securing a US trade deal would move up the UK’s list of priorities, according to people familiar with the matter who requested anonymity discussing internal government thinking.
The president-elect’s stance poses a conundrum for Starmer as he works to repair post-Brexit economic links with Britain’s European Union neighbors and pursues a thaw in ties with China following years of tensions over Covid-19, Hong Kong and hacking allegations. The US is Britain’s biggest single market for imports and exports — trade between the nations totaled more than £300 million ($387 million) in the year through March — and preserving that may involve trade-offs in other relationships.
“Our trading relationship, our economic relationship with the United States is absolutely crucial,” Chancellor of the Exchequer Rachel Reeves told the House of Commons Treasury Committee on Wednesday. “I’m confident that those trade flows will continue under the new president.”
Britain and the US held five rounds of discussions during the first Trump administration, before his replacement Joe Biden put them on ice. But now, the new Labour government’s ambition to forge closer trade ties with the EU puts a limit on the scope for greater access to American markets, the people familiar said, noting that the US would likely want the UK to diverge from the EU and lower its food safety standards to boost imports of US meat — a politically unattractive option for Starmer.
As a result, British officials see a deal between the UK and the US covering goods as unlikely.
But those officials do believe Trump is open to striking a pact covering economic security and technology. Former Tory Trade Minister Greg Hands said he had found Robert Lighthizer, Trump’s trade representative during his first term, easier to deal with than Biden’s team. With Lighthizer tipped for a top role in the new administration, he’s likely to be “hugely influential,” Hands said in an interview.
“Robert understands better what are the possibilities and the parameters of what the UK can do,” he said. “My advice to our government now is to get in there early. Try and approach Lighthizer now.”
Charles Grant, director of the Center for European Reform, a think tank, said on X that Trump could offer Britain a privileged trading position, possibly with fewer tariffs, if it differentiated itself from the EU.
In return for any derogations from his tariff regime, Trump may also push the UK to align with Trump’s efforts to economically isolate China, according to Sam Lowe, a partner at consultancy Flint Global.
“To what extent can the UK give Trump what he wants?” he said, suggesting options include “more tariffs on China or promises to instigate new investigations into Chinese exports.”
That could be awkward for Starmer, who’s sought to dial down tensions with China, including by sending Foreign Secretary David Lammy to Beijing and Shanghai last month. The British government is trying to attract inward investment — including from China — in order to boost economic growth. “Engagement with China is pragmatic and necessary to support UK and global interests,” Lammy said ahead of his visit.
One lever the UK could pull, according to Lowe, is introducing tariffs on electric vehicles from China — a policy which several other G-7 countries have pursued already. But due to the Britain’s size, Lowe sees few other options that the UK could offer Trump to persuade him to lower tariffs.
Despite the oft-heralded “special relationship” between the UK and US, Britain “should take the prospect of tariffs seriously,” according to Jojo Penn, a Conservative peer who served as deputy chief of staff to former Prime Minister Theresa May during Trump’s first term of office.
“Look at his track record: he has imposed tariffs on the UK in the past,” she said. “One of the problems last time was that people didn’t believe he would do what he said he would do.”
Asked Thursday about Trump’s stance — the president-elect has described “tariffs” as “the most beautiful word” — Bank of England Governor Andrew Bailey said: “We have to watch very carefully the fragmentation of the world economy.”
When the UK was still in the EU, Trump slapped tariffs on a range of European products — including Scotch whisky — during a dispute around aircraft manufacturers Airbus and Boeing. Britain followed up with its own levies on American whiskey and other goods — a tactic of retaliation that remains in the UK’s armory should Trump follow up on his electoral rhetoric.
“In any situation where you might be facing a difficult negotiation with any partner, you need reciprocal things to be engaged in that conversation,” UK Trade Secretary Jonathan Reynolds said in an interview with Politico this week.
Economists at Goldman Sachs have already downgraded their 2025 growth expectations for the UK economy to 1.4% from 1.6%, assuming that Trump brings in targeted tariffs for Europe and China. European Central Bank Vice President Luis de Guindos said it’s hard to understate how serious Trump’s proposed tariffs would be.
“If a jurisdiction as important as the US imposes tariffs of 60% to any other important jurisdictions — let’s speak about China — I can assure you that the direct effects and the indirect effects and the deviations of commerce will be huge,” he told an event in London on Wednesday.
But British ministers aren’t in panic mode. Reeves told the Parliamentary panel that the UK would make “strong representations” to Trump over the importance of free trade. Fellow cabinet minister, Pat McFadden, on Thursday told BBC radio that while Britain would argue for its interests, having new administrations on both sides of the Atlantic that were elected at similar times could also spell a period of stability in the US-UK relationship.
“For the next four years, the character of the governments in both countries are set and therefore we can look to what I believe can be a positive and fruitful working relationship,” he said. “In all of these things, the other thing I would advise is look at what President Trump does and not just what is said in the heat of the campaign.”
--With assistance from Tom Rees and Irina Anghel.
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