Trump 2.0 may turn out better than expected for Britain
While financial markets are worried about the implications of a second Trump presidency, it's always good to be counterintuitive.
Next Monday, Donald J. Trump will be inaugurated as the 47th President of the United States and the implications for the rest of the world could be as big as for America itself. His maverick style, and his decisions on energy, tariffs and foreign policy will not only be powerful in their own right, they will also set the tone, especially in the world’s sovereign debt markets.
Financial markets are alive to the risk that Trump’s policies not only disrupt Western alliances, but cause inflation and interest rates to rise, triggering a recession, with all that means for the balance of power, economies and institutions and societies across the world. That is why bond yields have recently risen and the dollar has been so strong.
In Britain, the risks are acute because we are sorely exposed after years of mismanagement. Rishi Sunak and Jeremy Hunt left the economy in improved shape, but Keir Starmer and Rachel Reeves have contrived to make it worse. Their first Budget in October announced substantially more tax, spend and borrowing.
Yet, at times like this, it is always good to be counterintuitive. There are actually reasons to think that the worse may not happen and things may turn out for the better.
Congress
A president is never as powerful as he is just before and just after he takes office. After a few weeks, certain things will become much more apparent.
The Republicans only have a majority of three in the House of Representatives. Every piece of legislation, especially economic legislation, will be a bunfight and although Trump’s supporters claim he can rely on executive orders under the Emergency Economic Powers Act, experience suggests that all the usual legal checks and balances of the American system will come to bear in the next four years, including mid-term elections in 2026.
Indeed, the coalition of tech-bros, country club types, blue collar workers and isolationists which make up the Trump power base could, in time, do a pretty good job of checking and balancing itself as they dispute with each other.
Then there is the role of the Senate.
One of the first hurdles Trump must clear is getting his Cabinet confirmed by the Senate. Despite a Republican majority of 53-47, Trump has three headaches: a rump of hawks from the Bush era who are at odds with an “America First” approach to foreign policy, Republicans retiring after long careers with little need for Trump’s patronage, and two senators from the dying Liberal Republican tradition.
Senate colleagues will be strategic about opposing Trump openly. But Senators have a constitutional duty they will want to exercise, and some already taste blood after successfully forcing Trump’s first Attorney General pick to step down.
Trump’s critical Cabinet picks are below. Most of his appointments will be approved, but history also suggests Trump himself may fall out with them later anyway.
Make Europe Better Again
We like to criticise Trump and his style on this side of the Atlantic, but we have plenty of bad ideas of our own to which Trump will act as a welcome antidote.
Followers of this note will know that we are very concerned about Net Zero policy which we regard as dangerously flawed. Increasingly, I am coming to the view that it is not actually technically possible to reduce our emissions to Net Zero by 2050. And certainly not without raising energy bills to socially crippling and regressive levels.
Fortunately, we have both American liquefied natural gas and nuclear technology to fall back on. Both of which will be supported by the Trump regime. These could prove to be disinflationary forces and help us keep the lights on.
Trump will also encourage European NATO members to get their houses in order, to enhance defence spending and capability. This will revive an old-fashioned pillar of Western policy: deterrence. That is the best way to deter malign characters in Moscow and Tehran.
The culminating crisis
Sooner or later, ministers and indeed the entire political establishment in Britain will have their illusions forcibly shattered by reality, including by financial markets. Such a shock has already occurred in France, Germany and Canada. With the disastrous reception of Rachel Reeves’s Budget and the arrival of Donald Trump, we may be getting close to our own inflexion point when the system will be purged of bad ideas. Tax, borrow and spend is an exhausted policy mix. Net Zero is not currently possible and anyway we should consider the trade-offs. We need to be more honest and creative.
We too have checks and balances. Already, the U-turns, sackings, and court cases have commenced for the Starmer regime. This is the usual course of events.
We undoubtedly face a difficult few months, especially in Britain. But given everybody is in a state of gloom, we must ironically be prepared for 2025 turning out better than expected.
George Trefgarne is Founder and CEO of Boscobel & Partners, an independent communications and political consultancy.
Nicholas Gardner is an Associate at Boscobel