Podcast Summary: Why Trump’s Tariff Threats Are a Major UK Headache
Podcast: In the City, Bloomberg
Host: Francine Lacqua
Guest: Dan Hanson (Chief UK Economist, Bloomberg Economics)
Date: February 6, 2025
Episode Overview
This episode dives deep into how President Trump’s abrupt and sweeping tariff threats—most recently targeted at Mexico and Canada—are creating economic uncertainty far beyond US borders, especially for the UK’s new Prime Minister, Keir Starmer. Francine Lacqua and her guest, Dan Hanson, analyze the challenges facing the UK government and financial markets as they try to decode Trump’s unpredictable trade policy maneuvers, juggle relationships with both the US and EU, and steady the UK’s own fragile growth outlook.
Key Discussion Points & Insights
1. Trump’s Tariff Policy: Instability and Negotiating Tactics
- Trump’s recent announcements of heavy tariffs have been quickly reversed or delayed, making it hard to predict actual policy changes.
- “You just wake up in the morning to a new set of headlines… for the next four years we’re just going to have to get used to that.”
— Dan Hanson (03:29)
- “You just wake up in the morning to a new set of headlines… for the next four years we’re just going to have to get used to that.”
- Tariffs are now less about correcting trade imbalances, more about negotiation and leverage.
- “Tariffs are being used…as a negotiating tool. It’s not really to address what I would call structural trade dynamics… it’s to get something out of the country that the tariffs are being slapped on.”
— Dan Hanson (08:34)
- “Tariffs are being used…as a negotiating tool. It’s not really to address what I would call structural trade dynamics… it’s to get something out of the country that the tariffs are being slapped on.”
2. UK’s Economic Position: Why Might It Avoid Tariffs?
- Trump’s focus is typically on trade deficits, but data discrepancies make the UK’s status ambiguous.
- “If you look at the UK data, the UK has a trade surplus with the US in goods. But if you look at the US data, the UK has a trade deficit… I haven’t seen a good explanation for why.”
— Dan Hanson (07:00)
- “If you look at the UK data, the UK has a trade surplus with the US in goods. But if you look at the US data, the UK has a trade deficit… I haven’t seen a good explanation for why.”
- Other factors: UK’s higher defense spending and willingness to negotiate on digital service taxes may shield it.
- “Maybe if Starmer agrees to lift defense spending a bit, maybe there’s something on digital services tax, maybe that will be the trade that the UK does.”
— Dan Hanson (07:56)
- “Maybe if Starmer agrees to lift defense spending a bit, maybe there’s something on digital services tax, maybe that will be the trade that the UK does.”
3. The Undercurrent of Uncertainty
- The real economic headwind is not tariffs themselves, but the pervasive uncertainty they cause.
- “Maybe the biggest impact on the economy of all these things is uncertainty. It’s not necessarily the tariffs themselves...”
— Dan Hanson (04:28)
- “Maybe the biggest impact on the economy of all these things is uncertainty. It’s not necessarily the tariffs themselves...”
- Short-lived tariff threats can be inflationary or disinflationary, complicating policy responses.
- “There’s another world where the US puts tariffs, say on the UK, the UK then retaliates, and then there is an inflationary impact. Of course, you’re absolutely right…”
— Dan Hanson (05:58)
- “There’s another world where the US puts tariffs, say on the UK, the UK then retaliates, and then there is an inflationary impact. Of course, you’re absolutely right…”
4. The UK’s Tightrope: US-EU Relations under Starmer
- Keir Starmer must balance closer EU ties (the main UK trade partner) without provoking US retaliation.
- UK government is careful not to “upset the bear” in Washington.
- “Everything they do is kind of very careful so that you’re not in the limelight, you’re not… the focus of the Trump administration because you don’t want to be slapped with extra costs.”
— Francine Lacqua (11:33)
- “Everything they do is kind of very careful so that you’re not in the limelight, you’re not… the focus of the Trump administration because you don’t want to be slapped with extra costs.”
- There are clear limits: no return to the EU Single Market or customs union, even as closer links are sought.
5. Domestic Economic Malaise and Policy Constraints
-
Weak demand (especially capital investment) and unusual consumer caution persist amid global headlines.
-
Government and Bank of England face limited options; stagnant growth, high inflation, and constrained fiscal space.
- “At the moment it feels like a lot of focus is being placed on interest rates. But the scope for interest rates to fall dramatically is fairly limited, I would say.”
— Dan Hanson (14:36)
- “At the moment it feels like a lot of focus is being placed on interest rates. But the scope for interest rates to fall dramatically is fairly limited, I would say.”
-
Negative headlines and volatile markets risk feeding a self-fulfilling cycle of pessimism.
- “It becomes a self-fulfilling prophecy…” — Dan Hanson (15:46)
6. The Role (and Limits) of the Bank of England
- There is some scope for rate cuts to support the economy, but inflation concerns persist.
- “There is something to be said for rates coming down fairly significantly this year. We think maybe 100 basis points is in the realm of possibility. If things continue to sour, it could be more.”
— Dan Hanson (19:23)
- “There is something to be said for rates coming down fairly significantly this year. We think maybe 100 basis points is in the realm of possibility. If things continue to sour, it could be more.”
- The UK’s productivity crisis needs “out of the box” supply-side reforms, more risk-taking, and leveraging AI for growth.
- “The UK does need to be a bit more of a risk taker… the source of all this weakness, which is the UK’s dire productivity performance…”
— Dan Hanson (20:53)
- “The UK does need to be a bit more of a risk taker… the source of all this weakness, which is the UK’s dire productivity performance…”
Notable Quotes & Memorable Moments
-
On Trump’s unpredictability:
“You will go to bed every night…wake up in the morning to a new set of headlines…”
— Dan Hanson (03:29) -
On uncertainty as an economic drag:
“Maybe the biggest impact…is uncertainty. It’s not necessarily the tariffs themselves… but the constant in it all is this uncertainty…”
— Dan Hanson (04:28) -
On UK’s cautious approach to Trump:
“They just don’t want to upset the bear, right? They don’t want to upset Donald Trump...”
— Francine Lacqua (11:33) -
On UK market vulnerability:
“If the market believes that interest rates are going to have to stay high for longer, that feeds into mortgage rates and you end up in a world... where it becomes a self-fulfilling prophecy…”
— Dan Hanson (15:46) -
On need for bold policy:
“This sort of out-of-the-box thinking — it needs to happen… You just can’t write it off out of hand because you need to give it a chance to work.”
— Dan Hanson (21:34)
Important Timestamps
| Timestamp | Segment Description | |-----------|-----------------------------------------------------------------------------------------------------| | 02:11 | Introduction to episode theme: Trump’s tariff threats and their impact on the UK | | 03:16 | Dan Hanson on the challenges of forecasting under Trump’s trade shocks | | 04:28 | Discussion of the primary economic impact: persistent uncertainty | | 05:17 | How tariffs could impact UK inflation – the disinflation scenario | | 07:00 | Data differences and why the UK may or may not get relief from US tariffs | | 08:34 | Trump’s tariffs as a negotiation tool, not as trade policy | | 11:33 | How Starmer and UK government are navigating between the US and EU | | 13:12 | Weak demand and structural changes in UK consumer behaviour | | 15:46 | The self-fulfilling prophecy of market pessimism and interest rates | | 19:23 | What options does the Bank of England actually have? Interest rates and regulation | | 20:53 | Need for supply-side reforms and bold risk-taking in UK policy | | 21:34 | Dan Hanson's motivational close on a more dynamic UK economy |
Summary Tone
The episode adopts a candid yet analytical tone, with both Francine Lacqua and Dan Hanson balancing sobering economic realities against the hope for creative policy solutions. Hanson is pragmatic but remains open to risk-taking and new approaches, reflecting the uncertainty and need for adaptability in the UK’s current economic climate.
For listeners: This episode is a valuable, accessible breakdown of how unpredictable US trade moves threaten to reshape the UK’s economic and political calculus—with special attention to uncertainty, shifting alliances, and the limits of policy intervention in the current climate.