Category Archives: Economic

Economic, Government, Politics, Society, United States

With or without tariffs, Trump has reshaped the world

GLOBAL ECONOMY

When the US Supreme Court ruled that Donald Trump’s tariffs were illegal, he reacted with characteristic fury saying the decision is a “disgrace” and that the judges have been swayed by “foreign interests”. Trump then asserted that he has a back-up plan ready to go.

Over the next few days, he may well use all the power of his office to find a way of reimposing additional levies on everything America imports (on top of the 10pc he has already announced).

And yet, despite all of the drama of the decision, it may not make a great deal of difference. Tariffs have already fundamentally reshaped the global economy – and there will be no return to the old order now.

The decision of the Court was split by six votes to three, but was still clear enough. By relying on a 1977 law meant for national emergencies to impose sweeping tariffs on everything from cars to toys to microchips, Trump exceeded the power of his office.

In peacetime, it is the role of Congress to decide on import levies. Trump can try to find another legal route if he wants to; but for now, his original tariffs are dead in the water.

So, does that mean we can all go back to the global trading system that has reigned for the last half-century? One in which the rules-based order is back, where free and open trade is restored, and where globalised supply chains can operate without any barriers? Well, not exactly.

As much as the European Union, the World Trade Organisation, and the gatherings of Davos might want it to, there is no going back to the old system. The world has changed too much since “liberation day” last April for that to happen.

To start, Trump has already said he will impose an additional 10pc global tariff, on top of the levies he has already forced through. Is that legal? At this stage, no one really knows.

The president is planning to use a section of the 1974 Trade Act which allows him to set import restrictions for 150 days, and it will probably be another year or more before the Court delivers a verdict on that decision.

By then, he may well be using another obscure piece of legislation, and then another. Trump is determined to impose tariffs, and will use all the power of the White House to make them stick. He doesn’t care how often the Court rules against him.

More significantly, just look at some of the ways that the global trading system has changed over the 10 months since the tariffs were first imposed.

Europe has already decoupled from the US as much as it can, and, where that hasn’t been possible, made concessions to hold the fort.

Japan has opened up its market to American rice, and will feel nervous of putting up barriers again simply because the Supreme Court ruling might mean it can do so.

China has started to build its own computing and chip industry, replacing the American hardware that it used to depend on.

Global conglomerates, such as Britain’s AstraZeneca for example, have already committed billions of dollars to building factories in the US to make sure their products are on the right side of the tariff wall, and, with those contracts already signed, there will be no movement to scrap those plans now. The list goes on.

The supply chains that span the world have already been reconfigured, and it is too late now for a complete reversal, even if some wanted to do it.  

Many of the senior figures around Trump probably suspected all along that the tariffs were illegal, but decided to go ahead anyway. They knew they would never get Congress to agree to them, and figured that a year would be enough time for the levies to change the global trading system.

In that judgement, then, they were correct. Surreptitiously, or maybe with some good fortune, they may even end up with the best of all possible worlds. The global trading system will have been reordered, and largely in America’s favour, with the tariffs as the battering ram.

But the levies themselves, with all the price rises for ordinary consumers that they triggered, will have to be ditched. The result will be falling inflation, and the Federal Reserve will be able to cut interest rates. That will help going into difficult mid-term elections later this year.

It will be messy over the next few weeks. The Trump presidency is a chaotic wild ride, and no policy has proved more disorderly than tariffs. We still don’t know if the White House’s new legal tricks will work? Or whether the president will try to persuade Congress to impose tariffs for him?

We don’t even know yet whether the billions of dollars in revenue collected from the tariffs will have to be repaid by the American government, and if so whether it is the manufacturers, the retailer, or even the consumer who will get the refund? Even by Trump’s standards everything is up in the air.

One point, however, is surely cast in stone. We are not about to return to the old trading system any time soon.

Trump has already reshaped the way goods move around the world. The huge trade imbalances between the US and the rest of the world will keep on being reduced. Manufacturing will move closer to the consumer. Trade flow will reduce, and barriers will remain in place.

Whether that will be better or worse than the old system is open for debate. Prices may well be higher, but against that there may well be better paid blue-collar jobs, and countries will rely more on their own resources.

Either way, that is the new reality, and one that Trump has created – and whether we like it or not, it will take more than six Supreme Court justices to stop that process now.

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Britain, Business, Economic, Financial Markets, Government, International trade, United States

The US dollar: down but not out

ECONOMIC

Intro: Reports of the declining status of the US currency have been greatly exaggerated

For economists, the impact of a falling US dollar and how that impacts Britain will be observed and monitored closely. Of interest will be why the dollar has fallen of late, what President Trump’s attitude is towards the US currency, and how that impact will be felt.

The dollar lost around 2pc during January against a basket of major currencies (as measured by the DXY index). At the time of writing, the DXY is close to a four-year low of 96.79 – a staggering 10.7pc lower than this time last year. This significant weakening of the dollar has been driven by US policy shifts, tariff uncertainties, and geopolitical tensions. It also, to a lesser extent, reflects global effort to “de-dollarise” led by China and other large emerging markets.

Just days ago, the Federal Reserve held its main policy rate at 3.5-3.75pc. But the US central bank previously cut rates by 25 basis points at three consecutive meetings – in September, October, and December 2025. Lower rates typically weaken the dollar by reducing its appeal to yield-seeking investors, prompting capital flight to higher-return assets elsewhere. Financial markets are anticipating one or two more US rate cuts in 2026, putting further downward pressure on the dollar.

Since Trump took office last January, Fed boss Jerome Powell has come under intense pressure to cut rates faster and further, with the President eager to stimulate investment.

Nominated by Trump during his first term and reappointed four years later by President Biden, Powell has resisted. He has warned of the dangers of US inflation – 3pc as recently as September and still up at 2.7pc, above the 2pc target. Trump’s announcement that he wants Kevin Warsh as the next Fed boss when Powell’s term ends in May has seen the dollar strengthen, given Warsh’s reputation as an inflation-fighting hawk. Warsh, however, is also son-in-law of Trump’s long-standing friend and billionaire donor Ron Lauder. It is doubtful whether he’d be the president’s pick without having pledged to nudge the Fed’s policy committee towards lower borrowing costs – so the pace of rate cuts could quicken, putting more pressure on the dollar.

In theory, Trump’s tariffs should have bolstered the US currency by reducing imports and improving the US trade balance. But the scale of the measures announced on “Liberation Day” in April 2025 instead contributed heavily to the dollar’s fall in value.

The president’s measures – initially hiking average effective tariffs from 2.5pc to 27pc within a month – sparked market turmoil, including an asset sell-off that pressured the US currency. Direct retaliation from major trading powers including China and the EU further eroded investor confidence and prompted US capital outflows. Trump’s tariffs, while they are less punitive than first announced, have combined with broader macroeconomic concerns – including the rise of America’s debt from 100pc to 125pc of GDP over the last decade – to drive considerable “sell America” outflows to other major currencies.

While the related dollar weakening has aggravated US inflation, a cheaper currency helps US exporters, not least “rust belt” manufacturers that are a priority among Trump’s “Make America Great Again” (MAGA) movement. That’s why many are inclined to think the president wants the dollar to keep on falling.

Trump has fuelled these concerns, pointing to the “great valuation” of the sharply depreciated US currency. There are suspicions the White House initially made its maximalist tariff demands not only as a bargaining ploy, but to strategically devalue the currency. The president’s dollar stance is nuanced – and often contradictory. He values “reserve currency status”, which sees the dollar demanded around the world both for payment transactions and a store of value. That supports the US currency, allowing America to run looser monetary policy without the inflationary impact of a dangerously weak dollar. Nonetheless, Trump has also shown willingness to tolerate and even encourage dollar depreciation for export gains (given his emphasis on appealing to blue-collar workers). Talk of the dollar’s demise, and its loss of reserve currency status, is, without doubt, overdone. The US currency still accounts for about 60pc of global foreign exchange reserves and almost 90pc of global transactions by value, underscoring its entrenched role.

Quite clearly, as the dollar has weakened, certain “safe haven” currencies have gained, with the Swiss franc up 13pc against the dollar during 2025. And despite its recent volatility, gold has soared from around $3,100 to over $4,900 an ounce since April 2025, such has been the impact of Trump’s “shock and awe” tariff announcement and the escalation of geopolitical tensions ever since.

When it comes to pound sterling, and the broader UK economy, a weaker dollar delivers a mixed offering. Benefits in lower import costs and inflation are offset by challenges for exporters, investors, and multinational firms. Since Trump’s second term, the pound has strengthened around 12pc against the dollar, from roughly $1.23 to $1.37. This makes dollar-denominated imports cheaper, reducing costs for US goods and dollar-priced commodities like oil.

And while the UK remains an inflation outlier, with a headline rate of 3.4pc in December, up from 3.2pc the previous month and higher than other G7 nations, domestic price pressure would have been even worse were it not for a falling US currency. Tourists and businesses travelling to, or dealing with, the US have also gained, with pounds stretching further abroad.

Yet the downsides are significant, particularly for UK-based companies with substantial US exposure. British-based exporters to the US have found their goods more expensive in dollar terms, undermining competitiveness and demand – especially amid US tariffs that add further barriers.

Overall, while a weaker dollar has flattered the value of sterling, and helped keep a lid on UK inflation, it has also exposed many of the UK’s structural weaknesses – a trend that looks set to continue.

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Britain, China, Economic, Government, National Security, Politics, United States

Questions to be answered over China’s super-embassy

NATIONAL SECURITY

The construction of the new Chinese “super-embassy” in the heart of London has been a long-running saga, its development plans shrouded in secrecy. Back in 2018, Beijing bought the Royal Mint site – an act whose symbolism was not lost on most Britons – for £255m. Assurances were given that the building would be used for normal diplomatic functions. But when the plans were released, they included a vast basement complex with no obvious purpose. Curiously, the details of the basement were redacted.

The true extent of Beijing’s plan has now been revealed. There will be 208 underground rooms, including a hidden chamber equipped with hot-air extraction systems, one metre away from Britain’s most sensitive communication cables, which transmit financial data to and from the City of London, as well as messaging traffic for millions of internet users.

Even before these revelations came to light, the Chinese plan came with obvious security risks: last year MI5 issued an “espionage alert” about Beijing’s spies targeting MPs and parliamentary staff “at scale”, while the US told Britain to reject the proposal on the grounds that it could effectively become a den of spies working against Western interests.

Planning permission has not yet been granted, but it is widely expected that Sir Keir Starmer will approve the proposal ahead of his visit to China later this month. For many in Britain, the obvious question should loom: why?

Labour’s 2024 general election manifesto promised an audit of Britain’s relationship with China. In the end, only two paragraphs of it were published, in the National Security Strategy. And, as is publicly known, the failure last year to prosecute Christopher Cash and Christopher Berry, two alleged spies for China, was because the UK Government was not prepared to provide witnesses willing to describe China as “an enemy”.

Britain is in the economic doldrums, and Starmer is desperately seeking more direct investment for his growth plans. China has slowly been buying up Britain, purchasing UK gilts as well as companies. This leaves the UK vulnerable to pressure from Beijing, which has a record of using debt as leverage. The PM clearly believes Britain needs to be on good terms with China.

However, that shouldn’t stop him quizzing Beijing. If there is nothing to see, why was so much of the plan redacted? Why does a foreign embassy need 208 rooms underground? Why demolish and rebuild the outer basement wall of the secret chamber, directly beside the fibre-optic cables that carry information critical to Britain’s national security and prosperity? And if the embassy is built, what does Britain gain?

These questions need to be satisfactorily answered before the green light is given to build a Chinese super-embassy in London.

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