Labour’s trade and tariff balancing act

Good morning. After another day of market chaos in the world’s biggest economy — sparked by a man holding up a large poster in his garden — chancellor Rachel Reeves flies to Warsaw today for the relative sanity of an EU finance ministers meeting.

I remember the good old days when Gordon Brown, former Labour chancellor, would use “Ecofin meetings” as a prop to make domestic political points: “Brown to tell Europe to do X,” would be the story fed to the Eurosceptic press the night before.

Reeves will be in a much friendlier mode and will receive a warm welcome. Her mood will be buoyed by this morning’s February GDP figures, up a surprising 0.5 per cent, but of course that was in the pre-tariff world.

How much will Europe feature in Reeves’ thinking as she attempts to retool her economic plan to take account of the new Trumpian landscape of tariffs and economic gyrations?

Stepping up UK-EU ‘reset’

There has been something of a disconnect between the “world has changed” and “end of globalisation as we know it” rhetoric of Keir Starmer and Reeves and the more prosaic reality of what they are planning to do about it.

“Our plans don’t so much change as turbocharge,” Starmer said this week. In other words, the broad economic plan doesn’t change but he’ll do more of it and more quickly. Privately, officials say the prime minister is prepared to take more risks.

Reeves has been cloistered with allies in recent days to discuss what this might look like in practice — expect to see more initiatives after Easter. But the EU/UK summit on May 19 will increasingly become a focus for ministers looking for ways to boost growth.

The first focus of the event will be deepening UK/EU co-operation on defence — including procurement — giving British companies access to a new European fund set up to re-arm the continent in the face of Russian aggression.

“The chancellor will be travelling to Warsaw to make the case for deeper defence financing co-operation with our European allies so together we deliver greater economic and national security in a changed world,” a Treasury official said.

Reeves also wants to go beyond the publicly stated position for an EU “reset” to remove more barriers to trade. She has floated alignment with EU rules — kryptonite for Brexiters — in established industries such as chemicals.

Where next? The government’s promise to streamline decision-making in Whitehall suddenly looks a lot more serious after the Cabinet Office led the way by announcing the axing of almost a third of its staff. Expect that to set the tone for future rounds of job cuts.

Reeves is also looking for ways to bring forward her “modern industrial strategy”, which will set out ways to bolster eight growth sectors — and to offer some form of protection to those exposed to the Trump storm.

Here things look a lot less promising. Even those involved in drawing up the industrial strategy are downbeat about it. “It’s a red herring,” said one, adding that unless it is backed by money (and we won’t know about that until the spending review concludes in June) there’s a limit to what it can achieve.

Expect to see more work on deregulation — and the axing of quangos — in the coming weeks, but Reeves and Starmer know that any number of supply side reforms are unlikely to offset the effects of a global trade war and the damage that will inflict on the public finances.

Baseline blues

Talking of which, there is now growing gloom in Whitehall about the prospects of negotiating down the 10 per cent “baseline” tariff imposed on Britain (and most other countries) by Trump, as Starmer and his ministers focus instead on trying to get him to cut the 25 per cent tariff on British cars.

Lord Peter Mandelson, the UK’s ambassador in Washington, and British negotiators are still pushing for a broader economic deal, including closer co-operation on tech, AI and space, but the expectation is that an agreement may be some time away.

None of this looks easy. One British official succinctly explained the position: “They still have to clarify among themselves what they do next, with whom and how. This is a journey, a process, not an event in which policy, politics and markets are all intertwined.”

If Trump isn’t prepared to negotiate away the main 10 per cent baseline tariff being inflicted on Britain, that might at least take pressure off Starmer to offer up some very politically sensitive concessions to the US president to secure an ambitious deal.

It was striking that Jamieson Greer, the US trade representative, told Congress this week that he had been “clear” to Britain that he did not like the UK’s barriers “in the ag space”. 

So we’re back to hormone-treated beef and chlorine-washed chicken again. We talk about this in greater detail in a bumper end-of-term Political Fix podcast this week with Lucy Fisher, Miranda Green and our Markets supremo Katie Martin. And for our Q&A coming up, please send us your questions (written or in a voice note) with your name at politicalfix@ft.com.

Now try this

With Easter coming up, a couple of thoughts. First, get out into the countryside and enjoy the Exmoor coast path, the finest and most varied stretch of coastline in England, with great pubs along the way.

I spent a lot of my youth walking it, but I’m reminded of its magnificence by some great pictures from his recent holiday by our colleague Jim Pickard. 

But for an indoor treat, I can wholly recommend the RSC’s Kyoto, which somehow manages to eke high drama and humour out of the political negotiations leading up to the crucial COP3 environmental treaty.

It’s running at Soho Place, a great new theatre in the West End, with Stephen Kunken leading the audience through the complexities of climate talks through the eyes of a hard-nosed lawyer lobbying for Big Oil. The late John Prescott comes out of it well too.

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