Why Starmer shouldn’t trust Trump America views uncertainty as a weapon

“Everything has changed,” Keir Starmer warned us only a few weeks ago, noting how Donald Trump’s re-election is reordering the globe. And yet somehow, even after “Liberation Day”, everything in Britain has stayed the same. Austerity is back, just with a Labour veneer.

Labour’s primary economic goal has been reduced to avoiding US tariffs and scoring a half-cocked half-trade deal with Trump. In a bid to appease the President, the government will likely jettison the Digital Services Tax, levied on 2% of US Big Tech revenues here and bringing in £700 million a year — an all-but direct transfer from the UK’s poorest to Mark Zuckerberg’s pockets. Moreover, Starmer has funnelled money away from welfare and towards a supposedly Trump-pleasing increase in defence spending. That’s while the Government’s own figures show that 250,000 more people, including 50,000 children, are expected to be pushed into poverty by the end of the decade. When Starmer says “everything has changed”, like Prince Tancredi in The Leopard, he is making sure everything stays the same.

Perhaps he thinks this will help Britain avoid “jumping into a trade war” — as if he had much say in the matter. If you don’t want to fight a war and someone else very much does, you will, by default, lose.

And his government has won strikingly little. Britain gained no special treatment, compared to any other large economy with a US trade deficit. Brazil and Australia, for example, both had the same 10% tariff applied. The crude, mechanical formula the Trump administration used to calculate tariffs was levied on the UK the same as almost everywhere else. Canada and Mexico, two countries whose leaderships have been notably more forthright, won a relative reprieve for negotiations.

Contrast this unhappy island with the peculiar joy that has been overflowing the banks of the Spree. Following Chancellor-in-waiting Friedrich Merz’s announcement of a dramatic, debt-funded expansion of government spending, there has been a sudden, electric transformation of Germany’s possible economic fortunes. The cracking of the postwar European security system, somewhere between JD Vance’s speech in Munich and Volodymyr Zelensky’s dressing down in Washington, has provoked a deep recalibration of priorities across the continent. Germany must become, in Merz’s words, “independent of the USA”.

A consensus has incinerated Germany’s dogged commitment to the debt brake that had been promoted to a hallowed status. In a deal with the Christian Democrats and the Social Democrats, the one-time radical peaceniks in the Green Party are now happy to nod through an immense expansion of the Federal military budget with the questionable promise of a few more EV charging points. A split in the Left Party dotted the umlauts. Undesirables to the Left and Right shoved to the margins.

For 15 years, austerity has seen Germany banging its head against a fiscal wall — and it feels great to stop. After the government pledged for “whatever it takes” on defence spending, the Frankfurt Stock Exchange soared, led by arms manufacturer Rheinmetall whose share prices were up 140%. A further half a trillion euros has been set aside for domestic investment and some social spending, in the hopes of repairing the country’s crumbling infrastructure. Germany’s once-famed railways have got so bad that the US Department of Defense issued a complaint about delays in moving materiel to the Ukrainian frontline. Altogether, Germany is pledging more borrowing and spending than Reunification, and the Marshall Plan, the two foundational moments in the construction of its modern economy. This is a serious, genuine, 180-degree shift in orientation. Trump’s tariffs have only underlined the need for a recalibration.

While Trump’s re-election has transmogrified Germany’s fiscally constipated Christian Democrats into partisans for debt-fuelled military Keynesianism, the opposite has happened in Britain. It has warped the Labour Party into steely-eyed austerians more than prepared to trim the supposed fat of the British state for the benefit of British Aerospace’s profits. Starmer is targeting an “overcautious, flabby” government for cuts beyond the brutal slicing of welfare. Labour ministers will point to Reeves’ tax-and-spend first Budget, in October last year, and claim that this new enthusiasm for the fiscal knife isn’t austerity. But last year’s sudden £70 billion flurry of generosity will not make any noticeable difference to the 800,000 Personal Independence Payment claimants, who are now losing on average £4,500. This is austerity, with a vengeance. But it is Labour austerity: cynically trying to buy off a few potentially noisy complainants in the public sector unions while shoving those without an institutional voice under a Motability car, all justified in the name of “security, dignity and agency”.

Starmer may not care too much. The Prime Minister’s various international appearances since January have been greeted with a chorus of happy barks from Britain’s commentariat. His first six months after his election victory saw him thank the country by spending an extraordinary amount of time out of it: and he clearly would rather strut around the international stage than grub around in the murk of Workplace Capability Assessments. It is not clear what his plan to win the next election might be.

The generous interpretation is that Starmer is playing to his strengths, and that his diplomatic efforts since last summer are now producing dividends in his close relationship with Trump. But handshakes in Washington do little for local elections, such as in Runcorn where the party expects a Reform victory in a once-safe seat. Defence spending, which is increasingly tech- and equipment-focused, has (as government assessments show) limited impact on jobs. The content and purpose of the planned increase in defence spending remains unclear. Pointing at Russia and making scary noises do not actually constitute a strategic plan. Britain’s military, and its notoriously wasteful contractors, have been gifted a blank cheque.

Labour has decided to remove one of Britain’s actual advantages in the world by chopping its significant foreign aid spending. Humanitarian costs aside, the hard-nosed calculation ought to have been that soft power can be leveraged in a world in the near-future where the Global South will matter more, and the old West far less. Britain’s “coalition of the willing” is anything but: those European countries pledged to Ukraine’s defence are locked in mutual disagreement over how, and even whether, to provide military support for any peace deal.

And, as everyone who has ever dealt with Trump discovers, a personal pledge at lunchtime can become a vitriolic tweet by midnight. Choosing to align so closely with a regime that views uncertainty as a weapon and treats all relationships as purely transactional is an invitation to failure. There are, it is true, hard economic reasons that encourage Starmer’s attitude: outside the EU, with few friends in the world, lumbering around with failing institutions, a stagnant economy, and some extraordinary external liabilities, the country’s elite may see few options beyond supplication. The Government’s notional opposition agrees: both the Tories and, even more so, Reform, offer no alternatives beyond national forelock-tugging with more or less enthusiasm.

But that doesn’t mean other options don’t exist. One Euro-optimistic vision, towards which the world’s stock markets have been pointing, is a prolonged period of turbulence and lower growth in the US. As the Trump administration tears out the wiring of the global economic order, big money flees frightened by rumours of capital controls and the reality of on again, off again tariffs. Already The Telegraph reports America’s ultrarich are rushing to open Swiss bank accounts. As Trump’s America slides, Europe, led by a freely-spending Germany, attracts the investment; relations with China are normalised, trade accelerates; the war in Ukraine at least paused. Where once US growth meant European prosperity, that link has now shattered: in Trump’s first decade as a national political figure, a soaring US, floated aloft on cheap gas and demand for dollars, was mirrored by a stagnant Europe. If recent stock prices are any guide, we have been heading for a reversal: US flatlining, European growth.

It is certainly too soon after the tariff shock to make robust predictions, and too soon to declare that Europe is heading for a rebound. Already the fiscal strains of the attempted rearmament drive are beginning to show, and the EU’s infrastructure pledges do not meet even the requirements detailed in Mario Draghi’s blockbuster report last year. A 20% US tariff will be hard going, even if the EU has a meaningful capacity to retaliate, and to negotiate. But it is plausible to think that the era of “American exceptionalism”, of its uniquely rapid growth in a stagnant developed world, may well be over. And Britain, on current showing, is going to find itself on the wrong side of that Atlantic divide.

Britain’s economic fundamentals are substantially worse than other, similar economies. Our weakness when it comes to productivity growth, the size of government debt, and our import dependencies for essentials such as food and energy means that we have fewer options. Or rather few options that would not now involve seriously challenging power and wealth in this country. Calls for a wealth tax are growing. The absurd, £130 billion hand-out to the Bank of England “losses” is finally attracting political attention — although among national parties only Reform has been brave enough so far to call for its removal. The Treasury itself could finally learn to invest outside London and the southeast. If everything has changed, everything must change.

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James Meadway hosts the weekly economics podcast Macrodose.

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