Trump’s Tariff Threats Drive New Wedge Between UK and Europe

(Bloomberg) -- Prime Minister Keir Starmer had hoped to spend Monday marking a new milestone in the UK’s much-promised reset with the European Union five years after Brexit. Instead, he received a dramatic reminder of how much harder that will be with Donald Trump back in the White House.

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As Starmer attended a European leaders meeting in Brussels, Trump approved — and then suspended — tariffs of as much as 25% on goods from Canada and Mexico, and vowed to subject Europe to similar treatment soon. The UK would probably be spared for now, the US president said: “That one can be worked out.”

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The reprieve highlights how the UK’s divorce from Europe could finally bring some benefits, even if it remains at the mercy of a “special relationship” that has been one-sided for decades. It also undercuts Starmer’s campaign promise to rebuild relations with Brussels, given that the Labour leader rose to political prominence campaigning against Brexit.

Now, Trump, who often praises Brexit and once held out the prospect of a US-UK trade deal, is driving the wedge in deeper. At some point soon, he may force the famously cautious Starmer to pick a side.

“The government has a choice and it has to weigh up: does it want to stick close to the US, or stick close to the EU?” said Paul Dales, chief UK economist at Capital Economics. “My hunch is that the government will try and do both and probably fail to do both — I think that’s the risk.”

Starmer’s difficulty was clear in his briefing with North Atlantic Treaty Organization Secretary General Mark Rutte on Monday afternoon, where they had hoped to emphasize the UK’s commitment to European defense, particularly support for Ukraine. But both men repeatedly avoided saying whether Trump was seeking to split US allies with his tariff threats and demands for greater control over Greenland, a self-ruled territory of fellow NATO member, Denmark.

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Canada’s top envoy to the UK warned on Monday that Trump wouldn’t stop with his country, which shares King Charles III as a head of state. “You could be next,” Canadian High Commissioner Ralph Goodale said of the UK and continental Europe during an appearance on British broadcaster LBC.

While the US is the UK’s biggest individual trading partner, taking in £179 billion ($222 billion) of British goods and services a year, the EU market is almost double that at £348 billion. The closer the Labour government aligns the British economy with the EU’s — as it promised to do in July’s election — the less room it has for maneuver to accommodate US demands on trade.

“Both of these relations are very important to us, we’re not choosing between them,” Starmer told reporters ahead of the first meeting between a British prime minister and EU leaders since Brexit. “We don’t see it as an either-or.”

Even while Starmer was settling into his meeting with Rutte, investors were getting a lesson in Trump’s capacity to throw rivals off balance. Trump announced a one-month delay on tariffs on Mexican goods. Mexican President Claudia Sheinbaum had agreed to send 10,000 National Guard officers to the border to help stem the flow of fentanyl and migration into the US.

Trump later confirmed a similar 30-day pause with Canada, as well.

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That’s the sort of negotiation that Starmer could soon face, despite Trump’s latest overture to the “very nice” British prime minister. “UK is out of line, but I’m sure that one, I think that one can be worked out. But the European Union is, it’s an atrocity,” he said.

One reason Britain’s exports to the US are out of Trump’s line of fire is because American figures suggest the US had a physical goods trade surplus with Britain of about $10 billion in 2023. UK figures, by contrast, suggest that Britain enjoys a small surplus. That compares to the sprawling surplus in excess of $200 billion enjoyed by the EU in its trade with the US.

“We have got a fair-and-balanced trading relationship,” Starmer’s spokesman, Dave Pares, told reporters in London on Monday. “It benefits both sides of the Atlantic and we look forward to building on that.”

Although British officials have privately expressed relief at Trump’s warm words, they’re concerned that maintaining calm could come at a cost. UK officials are war-gaming hypothetical scenarios in which the Trump administration ends up threatening the UK with tariffs unless it complies with US demands in future, according to people familiar with the discussions.

One scenario envisaged is that Trump tries to pressure the UK into stopping imports of Chinese electrical vehicles. If that were to happen, Starmer would have to choose between upsetting Beijing, with which he is pursuing a thaw, or face the prospect of entering Trump’s sights for tariffs. In that situation, the UK would likely have little choice but to submit to US demands, an official said. China has retaliated against Trump’s opening tariffs by slapping levies on some American goods.

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For now, Starmer’s administration has held firm on refusing to loosen food standards, a key US demand in past trade talks. During a call with Trump last week, Starmer emphasized the leaders’ shared support for deregulation.

There’s also the prospect of alienating EU member states when trying to avoid confrontation with Trump. Already, Starmer has faced some domestic criticism for his silence in the face of US tariffs on Canada, and his hesitance to back Denmark in its row with Trump. The premier will host Danish counterpart Mette Frederiksen for dinner in London on Tuesday evening, a meeting that will add pressure on Starmer to speak out about Trump’s threats on Greenland.

“It seems like the UK is trying to appease him in some way, but sooner or later there will be some difficult policy conversations, a request for us to align on something,” said Anna Jerzewska, founder of consultancy Trade & Borders. “Here’s where the UK would need to take a stand.”

Trump’s about-turns on Monday shows how quickly he can change stance. Bloomberg Economics estimates that if Trump imposed 20% tariffs on the UK, growth this year could come in at 0.4% rather than 1.1%.

That would be a blow to Starmer and Chancellor of the Exchequer Rachel Reeves, who see generating economic growth as the key to being able to deliver on their wider electoral promises around living standards and public services. With the British economy stagnating, they’re pushing a menu of infrastructure spending and deregulation alongside the pursuit of closer economic ties with the US and EU.

At the EU dinner on Monday, Starmer continued his drive for closer ties, seeking to persuade his counterparts to accelerate talks for a UK-EU defense pact, spanning cooperation on the development of military technology, troop mobility across Europe, protection of critical infrastructure and defense production. If forced to choose between allies, it’s the reset that’s likely to win out.

“It’s in the UK’s interest when it comes to Trump to say very little, when they do say something to look for opportunities to say something positive, and to otherwise keep its head down,” said Sam Lowe, a partner at Flint Global.

--With assistance from Alex Wickham, Ellen Milligan, Caroline Alexander and Sanne Wass.

(Adds detail on China and meeting with Danish PM.)

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