Ben Chaplin examines what Donald Trump’s shock election victory in the US could mean for post-Brexit Britain
Donald Trump’s US election victory is the biggest political earthquake in modern times and shook the world to its core, even dwarfing the shockwaves felt after Britain’s historical Brexit vote in June. The impact of Donald Trump’s remarkable victory on post-Brexit Britain is difficult to assess.
Immigration was indeed a central issue in the Brexit and Trump campaigns, and there is some evidence that some areas that have seen rapid growth in migrant populations saw large votes to leave.
While President Barack Obama opposed Britain’s decision to leave the EU and warned it would leave the UK at “the back of the queue” for trade deals, Trump was an outspoken supporter of the move and said the country would be “treated fantastically”.
Questions are undoubtedly being asked about what impact of Trump winning the US election will have on the UK following the decision for the UK to leave the EU. Trump’s election win could spark UK trade deal talks.
The UK/US talks could be set to get under way even before Article 50 is triggered, with sources suggesting that Theresa May, who was among the first world leaders to congratulate Trump, is set to make a visit to Washington early in 2017. In her speech congratulating Trump on his US presidential election victory, the prime minister said. “Britain and the United States have an enduring and special relationship based on the values of freedom, democracy and enterprise. We are, and will remain, strong and close partners on trade, security and defence.”
Trump’s general attitude to free trade deals is hostile, and the irony may be that he hailed Brexit as a repudiation of free trade and freer movement of workers.
It is not immediately obvious that a UK-US free trade and freer movement deal would actually be favoured by a Trump administration. Yet for a free trade agreement to work its economic magic, resources in each nation – people and capital – have to be allowed to move to more efficient uses. If not, then the free trade agreement will fail to deliver for any party.
The UK exports around £30bn worth of goods and services to the US, a little ahead of what we sell to Germany and about four times what the UK sends to China. It is a market that matters, however we get access to it.
The Republican President-elect has made it clear he wants to renew the ‘Special Relationships’ with a free trade deal with Britain but scraps plans for one with the struggling European Union.
Dan DiMicco, a Trump advisor, said last month that Britain – “America’s friend” – would be “first in line” for a trade deal.
However, experts have warned that the UK should not expect any favours from Mr Trump, who has campaigned on a promise to “Make America Great Again” and criticized free trade deals signed by the US.
The economy and the markets
The US dollar fell significantly as traders in the US came to terms with the result. The UK will not be immune from any slowdown in the global economy that might result from a Trump victory.
There are economists who are predicting that Trump’s election will trigger an immediate global recession may be too pessimistic. One lesson from Brexit is that financial markets may overreact to political developments, and that ‘uncertainty’ in the general sense is less economically damaging than one might think. In practice, while businesses and consumers certainly don’t like uncertainty, they tend nevertheless just to carry on. So we may find that little changes over the next few months.
But over the medium to long term the potential downsides are huge. There will be substantial pressure on Trump to deliver meaningful change. Trump could – if he chooses – take rapid unilateral actions (for example, raising tariffs on imports from China or Mexico) that would have an immediate and damaging impact on the global economy. Changes to tax or budget policy will need to go through Congress; but Republicans control both houses. Large tax cuts, especially for the wealthy, and major changes to Obamacare seem inevitable.
How this now pans out is anybody’s guess, but a threat to the stability of the dollar could easily destabilise the entire world economy, and especially the financial system.
• Ben Chaplin is MD of Croner Taxwise. Call 0844 892 2776 for information
Accounting Practice Online is part of the ICPA, which is an organisation designed to provide support and guidance for accountants in practice. With 35+ practice specific benefits there has never been a better time to join. Take a look at the routes to membership today.