When Rachel Reeves touches down in snowy Davos next week, she will be embarking on a hectic few days pressing flesh with the global elite. Attendees include big bank bosses, world leaders such as the government waste slashing Javier Milei of Argentina and royalty – in the form of Princess Beatrice. With the UK Government desperately searching for growth opportunities, Reeves has a packed schedule of roundtables, fireside chats and one-on-ones with the chief execs of investment and tech firms.
Yet all eyes in the Alps will really be on Washington DC where Donald Trump will next week return to the White House. Trump will address the Davos elite once sworn in. However, this will be done remotely – dialling in from the States rather than attending in person. Perhaps that’s for the best given many of the Davos billionaires are rather sceptical of Trump’s America First approach and fear he could unleash a global trade law where everyone loses eventually. Just this week the IMF warned against his plans. But like him or not, Trump cannot be ignored. Leaders and business figures gathered will likely spend half their time refreshing their phones to check what executive order or comment on tariffs the president has made – or what gossip emerges from the various inauguration balls.
As things stand, Rachel Reeves has had the trickiest start to the year of any member of Keir Starmer’s Cabinet. Bad economic news led to excited speculation that she could be pushed out from her role before the year is out. Rarely a day goes by without some anonymous Labour MP laying into the beleaguered Chancellor. However, her team say she is staying put. ‘A lot of people got too excited,’ says a Reeves ally. ‘She’s not going anywhere. She’s getting on with the job.’
But forget unhappy members of the Labour parliamentary party, Reeves’ fate is much more likely to be decided by Trump. The person Reeves does need to worry about is across the pond.
What Trump chooses to do on trade, tariffs and security is going to have a far bigger effect on Reeves’s plans for the UK economy than any domestic grumbles. Trump has famously said his favourite word is tariff. He suggested during the election campaign that he would implement tariffs of 10 per cent – 20 per cent on all good coming in and for China specifically they could expect that to ratchet up to a cool 60 per cent. Those in Trump-world say the president elect plans to use the threat of tariffs to force trade partners to bend to his will. The expectation is that there will be special exceptions or carve outs for those who play ball.
The view – be it hope – in government is that they will not be the first in line when it comes to potential tariffs. However, there are nerves in government that the UK economy could be particularly vulnerable. The Business Secretary Jonathan Reynolds recently warned that a Trump presidency will be a “challenging time for anyone responsible for trade” – before adding that the “UK is a very globally orientated economy, so the danger to the UK is actually greater than some comparable countries”.
It means good relations are viewed as key. While the appointment of Peter Mandelson as US ambassador led to criticism from one senior Trump aide, Labour aides – and some in other parties – believe that Mandy has the charm, skill and knowledge to work well in his new brief. ‘I’ve always thought he would be good,’ says one senior figure in the Reform party, in a sign that Mandelson may surprise sceptical Trump figures.
He has hit the ground running ahead of the inauguration with an Op-Ed for Fox News talking about making the special relationship great again. Reeves has known Mandelson for many years and the pair have been in regular touch for the past six months.
“Mandelson understands trade like few do so they can work closely together,” explains a mutual colleague.
Reeves plans to keep pushing for free trade and to avoid a choice between Europe and the States. However, Liberal Democrat leader Ed Davey’s call this week for the UK to join the customs union already has some secret backers in the Labour party. ‘if we need growth and Rachel can’t find it on her own, closer relations with the EU make sense,’ says one Blairite. More controversial for now is Reeves’s pivot to China. Labour MPs were given lines to take this week in a show of support to Reeves and this included defending her recent trip to Beijing. However, Trump and his team are highly sino-sceptic and may well take a dismal view if they fear Reeves is compromising security in pursuit of cash.
Inside Reeves's worst week - and the plan to repair her once bulletproof reputation
Read MoreReeves was always a fan of Bidenomics – and trump is adopting a very different approach. She looked to Janet Yellen for inspiration. Yet those close to her say she is keen to get to know the new Trump team and her counterparts when the time is right – she will not go in with an ideological approach. There will be a G20 meeting with such opportunities in November.
But the thing that is likely to most concern Reeves for now is what Trump does on defence. If tariffs are an issue for further down the line, as officials hope, demands for greater defence spending are likely to come fast. There is a G7 meeting in June. Trump has said he wants 5 per cent of GDP spent. However, the US does not even spend this. ‘The comments show Trump sees it as a subscription model, the more you pay the more the perks – but he will want at least 3 per cent of GDP.’ That demand could throw all of Reeves spending plans up in the air – even if the bond markets calm down.
Katy Balls is the political editor of The Spectator magazine
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