Sir Keir must now champion free trade

Will it come to be known as the Trump Slump, to be placed alongside the Great Crash of 1929 or Black Monday in 1987 in the annals of global economic upheavals? Markets spooked by the US president’s tariffs fell by as much as 10 per cent, wiping trillions from share values and wrecking the financial planning of companies and individuals alike.

Some of this stock, especially in the technology world, was overdue for a correction since it was being sustained at artificially high levels. But this is no consolation for those who have seen their portfolios shredded.

Whether it is a long-term trend remains to be seen. Markets knew Trump was planning tariffs and have reacted more to their unexpected scale than to their promulgation. It is possible they will settle down and there were signs yesterday of a slight, though temporary, rally as the initial panic subsided. Moreover, the falls have not yet reached the 20 per cent reduction that would constitute a crash even though most markets entered “bearish” territory.

The biggest problem is the uncertainty that the Trump administration’s actions have injected into global trading psychology. Here, UK companies were already factoring into their investment strategies the extra costs of higher NICs, an enhanced minimum wage and new workers’ rights. Bosses have already said these will put them off taking on extra employees.

But add in the ramifications of market volatility and the capricious nature of the Trump White House and that unpredictability is amplified. However much the rebalancing of global trade in goods can be justified from America’s point of view – and influential Trump supporters like Elon Musk are opposed – it can only cause harm here and elsewhere, at least in the short-term. 

The markets are pointing to the likelihood of a recession. The price of oil has plummeted because of fears of a slow-down in economic activity, which in itself has geopolitical implications especially for countries like Russia which rely heavily on their petro-revenues.

This may be more than a glitch, however. Governments need to assume tariffs are here to stay and act to protect their own interests. There is no sign that Sir Keir Starmer and his team have any coherent analysis other than to hope that the UK is somehow able to ride out the storm.

The Prime Minister is right to resist pressure from within his party to retaliate since the US president would simply extend his 20 per cent base tariffs to Britain as well, doubling the 10 per cent already imposed. In a speech in the West Midlands at the Jaguar Land Rover plant, which has halted exports to the US, Sir Keir repeated his view that “the world has changed”. Yet his response does not yet match the gravity of the moment. 

He has tweaked rules on the proportion of electric cars and hybrids that must be produced by manufacturers by 2030; but that was in the pipeline before the 25 per cent tariffs imposed on vehicle exports to the US.

Moreover, there is no point Sir Keir continuing to insist that his Government is committed to growth if it pursues policies inimical to achieving it. He talked about the “insecurity” felt by “working people” but not to businesses. 

Rachel Reeves, the Chancellor, said in Solihull that resilience and stability mattered. Yet she has already damaged the vaunted push for growth with her first Budget last October and her recent efforts to balance the books with welfare and foreign aid cuts are too little to counteract the impact. 

There are opportunities from the Trump shock but only if the UK moves in the direction of fewer regulations and a freer market, both of which are anathema to Labour. Perversely, Sir Keir sees what is happening as requiring an old Labour commitment to an “active state” while also lamenting regulatory barriers to growth. His Wilsonian rhetoric is all about protecting industry and directing investment into areas that may prove problematic, like AI. 

“We are going to use industrial policy to shelter British businesses from the storm”, he said. If that involves deregulation all well and good; if it is about the state picking winners history shows us this does not work.

Theoretically, the Government is still seeking the negotiate a trade agreement with America though having one did not spare Canada or Mexico from tariffs so the benefits are hard to discern. But another option presents itself: America accounts for just 14 per cent of world imports so there is scope for like-minded countries to band together in a free-trade coalition.

Such an idea has been explored by the Prime Minister in talks with Mark Carney of Canada, Australia’s Anthony Albanese and the Italy’s Giorgia Meloni, though the latter is hamstrung by the need to follow EU decision-making. “We will champion free trade right across the globe,” Sir Keir said. That is a message he needs Donald Trump to take on board.