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The pomp of Donald Trump’s state visit – with the fly-past, the carriages, the warm words of friendship – is all fair enough. But what will matter to most of us is whether the shifting economic relationship with America will indeed bring greater prosperity to people here, or whether we will end up being worse off than we were before he took office.
The harsh truth remains that notwithstanding the trade deal agreed with the US earlier this year, the UK faces more trade restrictions than it did before the President’s tariffs took effect. The fact that the UK has better access to the US market than the EU is of some help – and it may be that European companies with British subsidiaries will export from here rather than from the Continent or Ireland. But, right now, it looks as though at best we will end up square – and there is ground to be made up. In the second quarter of this year, as the tariffs first hit, UK exports to the US fell to a three-year low.
This is not to dismiss the significance of the various investments by big-tech US corporations that have been announced in the past few days. Nvidia, the world’s most valuable company, says it will put in £11bn as part of a joint venture with partners Nscale and CoreWeave.
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“This will truly make the UK an AI maker, not an AI taker,” David Hogan, Nvidia’s head of enterprise sales for Europe, said ahead of the Trump visit.
Microsoft, second in terms of its market capitalisation, said it will add another $15bn (£11bn) to its investments here, bringing the total to $30bn by 2028. This is part of its plan to build the UK’s largest supercomputer, along with Nscale, a British firm. Other American giants, including Google and OpenAI, have promised multi-billion investments, too. Much of the development is going into the North East of England – and our Government has trumpeted that this will mean that the region will “become one of the largest data centre hubs anywhere in Europe”.
Not to dismiss any of this, for it is all most encouraging. There are other big US investments taking place, notably in financial services. For example, J P Morgan Chase, the world’s largest banking group, is drawing up plans for what would – if they go ahead – become London’s biggest office building. It’s on the banks of the Thames, near Canary Wharf, and they have asked the famous architects, Foster + Partners, to draft some designs. A week ago, the Government announced a series of other investments from US financial service groups, including PayPal, Bank of America, Citibank and S&P Global Ratings.
There are, however, three problems with all this cheerleading.
One is that you have to ask whether these investments would have happened, anyway. Some undoubtedly would. These giant US corporations did not become so massive unless they were brilliant at exploiting every opportunity that they could see. They are not putting in the money now out the kindness of their hearts. They are investing because they think they can make a profit. If they see other – and better – opportunities, they will go elsewhere.
That leads to the second point. Alongside these positive signals of the attractions of the UK for investment, there are a number of negative ones. For example, the pharmaceutical giant Merck has just scrapped its £1bn expansion plan, blaming the Government for not doing enough to support the sector. It had already started building a site at King’s Cross in London, but now won’t go ahead – and it is moving research from the UK to America.
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In addition, British companies are moving work from here and Europe to America in response to the tariffs. AstraZeneca, the UK’s most valuable company, announced last month that it will invest $50bn there, “building on America’s global leadership in medicines manufacturing and R&D”.
And third: despite the trade deal, there are still the barriers that this administration has imposed. Our hopes that there would be an announcement that steel tariffs would be cut from 25 per cent to zero seem to have been thwarted. Maybe this particular cloud will lift. Speaking to reporters as he boarded Air Force One, Donald Trump said that he wanted to help the UK.
“They want to see if they can refine the trade deal a little bit,” he said. “We’ve made a deal – and it’s a great deal – and I’m into helping them …. They’d like to see if they could get a little bit better deal. So, we’ll talk to them.”
We have put on the full show for him. If better access to the American market for our industries does indeed come out of it, then let’s welcome that. Actually, I think it makes a lot of sense to tie in as closely as we can to the US economy –because it is not only the largest, but also the fastest-growing in the world. But we should not expect any special favours, because that is not the way things work.
Anyone with a sense of history will know just how aggressively the US will pursue what it sees as its self-interest in commercial matters. There was the occasion after Japan surrendered on 15 August 1945 and Lend-Lease – which had enabled Britain to finance its huge war effort – was abruptly cancelled in September. We were bankrupt. We managed to negotiate a loan, the Anglo-American Financial Agreement (which was signed in December), but we were in a position of extreme weakness. The new Attlee government felt dismayed at the brutality with which the Americans negotiated, given the sacrifices that the UK had made. We had to make a series of trade concessions and only paid off the final tranche of the loan in 2006. There is a government commentary here, published five years ago, about the whole deal.
Not only did we have to pay interest on the loan (whereas we had hoped to get it interest-free), but “sweeteners” were attached that we were forced to accept. There is a telling extract from that commentary here:
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Client status, indeed. That, I suppose, is what we have to accept now – and it is one of the reasons why many people feel uncomfortable with our relationship with the US. It feels a bit humiliating, though the Americans generally wrap it up better than the Europeans did when we negotiated the trade deal with them – where they sought to make it so difficult that other countries would not want to leave the EU.
My own feeling is simply that we should expect no special favours from the US whoever happens to be president – and that, in a funny way, the direct approach of Donald Trump is preferable to that of some previous administrations, where we have been led along to assume we will get more favourable conditions than are actually ever delivered. We know where we stand.
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