The Chancellor of the Exchequer stated that the world has changed, and just hours later, the world changed again. This phrase has become a common refrain in Westminster in recent days, used to justify Rachel Reeves' shift in priorities and spending cuts announced in the Spring Statement.
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04-03, 2025When government officials say the world has changed, they mean, at least in part, the potential return of Donald Trump to the White House, and their inability to be certain of what will happen next. The US President's latest combination of stagecraft and political maneuvering is his announcement at a press conference that Washington will impose a 25% import tax or tariff on all cars the US buys from abroad.
According to the Society of Motor Manufacturers and Traders, the United States is the second-largest export market for British cars after the European Union. In the two-plus months since Trump's second term began, the UK government's strategy has been to argue privately and say as little as possible in public. As the saying goes, "if in doubt, say nothing," resisting the temptation to comment on the President's actions so as not to provoke him.
At the same time, work is underway on a US-UK trade deal, which might offer some degree of insulation from Trump's volatility and broadsides. But this all underscores that uncertainty is the new certainty, and a great deal of energy within the government is being expended on predicting what might happen, and then seeking to negotiate and/or mitigate the consequences of anticipated changes.
The independent forecasting body, the Office for Budget Responsibility (OBR), is undertaking the near-impossible task of making economic forecasts amid such turbulent uncertainty, but still attempts to make predictions. In its latest Economic and Fiscal Outlook (published alongside the Chancellor's Spring Statement), the OBR understatedly wrote: "Following the election of a new US administration in November, US trade policy and that of its major trading partners remains in flux."
The OBR devoted five pages to examining various scenarios that might arise following a 20 percentage point increase in US tariffs. First against countries other than the UK, then against all countries including the UK, and then again against all countries including the UK, but with those countries retaliating with equivalent tariffs on US goods. The forecasters think that the most severe retaliation would "almost entirely eliminate the headroom against meeting the fiscal mandate" – in other words, all but destroy all the budget adjustments and trade-offs Reeves has been grappling with in recent weeks.
Therefore, many ministers will be desperate to avoid any situation approaching this. And all this is before what Trump has called "Liberation Day" next Tuesday, when a raft of new tariffs are expected. The world has changed, and it continues to change.
