The implications of the 2024 U.S Election for UK policy and trade dynamics

By Paul McGrade, Lexington’s Senior Counsel and former British Diplomat

While the government will be dreading the instability which a second, vengeance-charged Trump term may bring, they will have been bracing themselves in any case for a difficult four years on trade, openness to China generally, foreign policy, especially in the Middle East and Ukraine and now defence. Each of these has the potential to hurt UK growth and/or force uncomfortable choices which strain Labour’s electoral coalition.

Trade

On trade, the bipartisan determination to revive American manufacturing – compounded by the decisive electoral role played by the Midwest rust belt States – means that a series of protectionist measures – steel and aluminium tariffs, the Boeing-Airbus subsidy dispute, US determination to protect certain industries from EU or UK carbon border taxes – will need careful management and will probably continue to generate longer-term business uncertainty. ?

Sharpest of all is China; where the US is acting against perceived, or convenient, national security threats, we can expect fierce pressure on the UK (and EU) to follow suit – on restricting Chinese trade, banning particular companies and locking China out of supply chains. That would depress growth and drive up costs and inflation, but Trump is unlikely to let the UK and EU continue to benefit from US economic growth and stay as open to Chinese trade and investment.

Trump’s win also forces Ministers to contemplate his threatened imposition of tariffs of 10 to 20 per cent on all imports, from rivals and allies alike. Having just won an election partly on voter anger at US inflation, Trump is unlikely to go that far, but he will enjoy wielding this threat, and could use it to force allies to loyalty on his China policy. These trade threats hit the EU harder than the UK, and Starmer’s government will probably find it useful to tuck in beside the EU in practice on many transatlantic trade issues.

Net zero

Trump’s win is a blow for net zero efforts across the board; perhaps the biggest immediate impact on business would be if he does, as promised, gut the IRA programmes, which are driving global net zero technology markets. Even without control of Congress, Trump could rescind the tens of billions of unspent subsidies and delay or de-prioritise clean energy projects, though he is unlikely to completely dismantle programmes which will benefit swing States. Republicans have taken back control of the Senate; if they win the House too - where Democrats are still hopeful of holding a majority - there would be few Congressional constraints on Trump and he would have a very good chance of renewing his first term tax cuts.

Tech Regulation

On tech regulation, Trump’s promise to roll back Biden’s Executive Orders regulating AI – and probably wider anti-trust probes in the sector – looks likely to lead to a trans-Atlantic regulatory stand-off. This makes the UK’s regulatory balancing act harder and potentially costlier, but also creates more space in which to carve out a distinctive approach.

Foreign Policy

On foreign policy, Trump's blank cheque support for Israel will continue to put Starmer’s government in an uncomfortable place on Gaza. However, this is unlikely to go as far as US support for – much less participation in – attacks on Iran oil facilities, given the impact on oil prices and fears of retaliation on Saudi Arabia, the key US Arab ally in the region. Trump’s victory is likely to create an early crisis on Ukraine, raising tough questions for Starmer and EU leaders about their willingness and ability to significantly increase immediate military and financial support for Ukraine, or face big Russian advances and potential crises on refugees and the security fears of Poland and the Baltic States.? More broadly, Trump’s victory moves NATO and security to the top of Starmer’s in-tray, especially if Trump pushes for an early, by definition pro-Russian, settlement in Ukraine.

All of this means a UK government more focused on foreign affairs and managing trans-Atlantic tensions than they want to be, and a Prime Minister with less time to drive domestic priorities. It should also, though, increase the importance of UK cooperation, especially on security, to EU partners.

~ Lexington’s Senior Counsel and former British Diplomat Paul McGrade