Chair of the WA Advisory Board and Former Permanent Secretary Sir Philip Rutnam, and Senior Political Advisor and Former Labour Special Advisor Jennifer Gerber, give their take on the impact of a second Trump presidency.
What does a Trump victory mean for the Government in the UK?
It’s an understatement to say there is no love lost between Labour and Trump’s MAGA Republican party.
The new Leader of the Conservative Party wasted no time challenging the PM on his Foreign Secretary’s previous comments about Trump (describing the now President-Elect as a “profound threat to the international order” and a “neo-Nazi sympathising sociopath”). There is speculation about David Lammy’s future, though it’s unlikely any move will happen independently of a wider future reshuffle.
We can also expect Trump to remember the help Labour gave Kamala Harris, and to want to extract something from Starmer early in their relationship.
But the UK will have to build a relationship with the new administration, however appalled its MPs and Mayor of London are by this.
The good news is we have good machinery in Washington and London that will be all over helping us to adapt. Unlike 2016 lots of scenario planning has been done. The key thing will be getting time with likely nominees for all the senior posts in Trump’s Cabinet and White House, and building links in Congress. The latter is easier because at least we know who they are. Expect Trump to take a long time making his own appointments, even if it is much slicker than last time. Britain also still has friends throughout the Republican Party, particularly on the security side.
It also appears that a political appointee for US Ambassador is off the cards and Peter Mandelson and David Miliband can stand down.
The real issue is whether the Government here is remotely ready for the big challenges that go with a Trump victory?
The challenge now and in the years ahead is huge – both in terms of domestic repercussions, on our place internationally and on our role in Europe – including the likelihood of more spending on defence, risks to the economy (through tariffs and pressure on UK Corporation Tax rates), and potentially being sidelined in discussions to end the Russia-Ukraine conflict.
The UK, bruised and isolated after Brexit will now have to show that it still has the ability to reach out beyond its shores and build strong relationships with those countries in Europe committed to defending democracy and the rule of law.
It will have to face up to the reality of increased NATO and defence funding and an emboldened Putin which will mean supporting those multilateral institutions we need to push back against Russian aggression.
Europe cannot take for granted US military support and a conversation with the British public about what this means will be uncomfortable but necessary.
What happens next in DC?
People and politics. Presidents make 4,000 political appointments to the executive branch, of which 1300 need Senate confirmation. (A comparison in the UK would be everyone in the Civil Service down to DG, some Directors, all Ambassadors, plus the heads of public bodies and regulators.)
Cue delay and wheel-spin, even in the best run administration. The really key appointments – Treasury Secretary, Secretary of State, AG, USTR, National Security Adviser, etc – are all massive calls which are already big media stories. Expect Trump to negotiate with multiple candidates.
But in terms of getting things done, it can be the second or third level person that is critical for, say, new regulation on aviation security or action on money laundering. That can take months. Follow what is happening in Congress too. Trump is now incredibly powerful in the Republican Party, but there is huge scope to influence the trajectory of policy by building relations quickly with Committee members, new Congressmen and Senators.
So what does Trump mean for the economy?
We’re already seeing the markets’ take. The US already has a large fiscal deficit, about 7% of GDP (compared to 4% in the UK), and Trump’s tax cuts could add heavily to this unless he cuts spending heavily (he hasn’t promised that). Fiscal loosening will be matched by higher interest rates and so a higher dollar.
Growth may be higher too but the big risk there is tariffs. He’s threatened 60% on Chinese goods and 10% on everyone else. No doubt there’ll be a negotiation but that in itself will create volatility. If implemented in full, US GDP could fall by 1.5%.
Mexico would be worst affected, but the UK would be very exposed as a small open economy: GDP growth down by 1% and price levels up 2-3% over a couple of years. That would count as an economic shock, meaning higher interest rates and more public spending cuts or tax rises to bring our deficit back under control.
In the long term, the really big issue is whether the markets will keep financing the US deficit with a low risk premium. If that ever changes everything in the world economy will change. Meanwhile, China will keep looking for ways to challenge US dominance, and that means the dollar as the world’s reserve currency.
What about sector impacts?
Trump will cut spending on green energy, boost production of fossil fuels, and pull the US out of The Paris Agreement. Expect that to mean lower oil and gas prices, and a tougher time for some renewable projects globally.
However, this is good news for the aviation, oil and gas sectors, and those auto manufacturers who have been slow to shift to EVs. It is also good for some measures of US and global growth, however, not enough to stop the wider shift to renewables now there’s been a transformation in costs, and the scale of investment and innovation.
Expect China to use the opportunity to further strengthen its lead in technology and position in climate politics.
Politically, Trump has given a boost to populism everywhere.
Finally, Labour strategists will be asking themselves what they can learn from the Democrats failure – especially in how Labour reaches out to disillusioned voters and those who supported Reform, key to Labour securing a second election victory in 5 years time.