Britain faces economic isolation as Trumpism takes over from Bidenomics
There are advantages to going it alone. If you go a different way to your peers and your way reaps rewards, you are the innovator, the entrepreneur, the leader who could best predict the future and knew how to make the best of it.
But if your chosen path doesn’t lead to prosperity – indeed, if it’s a road to nowhere – it’s far trickier to have ventured out alone. When things go wrong, there is no one to hide behind, no safety in numbers.
It’s quite the gamble – and it’s one Labour now accidentally finds itself taking.
When Rachel Reeves first announced her approach of “securonomics” back in spring 2023, it was made explicitly clear that this was to be the UK spin-off of “Bidenomics” in the United States – the president’s overarching economic agenda of the past four years, which focused on mass spending and green subsidies to get the economy growing.
The then-shadow chancellor delivered her speech in Washington DC, where she lambasted the Tory government for perceiving Joe Biden’s big spending and investment strategy as a “subsidy arms race”. Instead, she echoed Jake Sullivan, Biden’s national security adviser, insisting that “while globalisation as we know it may be dead, a new era of multilateral partnership is emerging”.
In simple terms: post-Covid, a bigger role for the state was clear. Biden’s “active state, pursuing a modern industrial strategy” was what Reeves wanted to emulate – and took the first steps to do so in her Budget last month.
Meanwhile Ed Miliband, the Energy Secretary, has set up GB Energy: an investment vehicle for the Government to funnel spare cash it finds into green energy projects of its choosing. Combine these two efforts and a Biden-style programme becomes clear. The selling point is the same, too: the promise of a wealthier, greener future.
There’s been a snag, however. The American people went to the polls and outright rejected Bidenomics. They have elected Donald Trump with a mandate to now usher in the opposite of what Biden promoted: they want a leaner state, more business freedoms and far less intervention into the private sphere.
This is not just a mandate for the return of Trump’s economy, but the expulsion of Biden’s economic policy. Exit polls suggest the economy was the number one issue for voters, as it has been for almost his entire presidency.
While America’s headline growth figures have been strong, too many Americans felt they missed out on all the spending and only experienced the consequences of it – mainly an inflationary spiral, which has only recently been brought back under control.
Reeves has time on her side: unlike the Biden administration, which was in power when prices skyrocketed, Labour gets to reap the benefits in the UK of inflation being tamed. It was the Tories who had to suffer the reckoning of voters, furious about the cost of living crisis.
But in losing Biden, Labour has lost its cover for what is to come: more spending, more state intervention and a record that will now be Labour’s to own.
The early signs are not terribly positive. Reeves laid out the first round of her plans in the Budget, with an agenda to frontload tens of billions of pounds of extra spending in the first two years of this Parliament. Yet the assessment from the Office for Budget Responsibility suggested that all these plans amounted to a downgrade in their growth forecasts for the latter half of this Parliament.
At the same time Labour has had to water down its promise that GB Energy would slash £300 off energy bills, as it is increasingly clear that piecemeal contributions into different green energy projects do not amount to an outcome which slashes costs.
How will this all compare to the United States, where subsidies are set to be cut, state spending substantially curbed and businesses given free rein to flourish?
There is, of course, no guarantee Trump will deliver this. If anything, Trump has done Labour a favour so far, by distracting the markets from the UK Budget – which caused borrowing costs to rise after it was announced.
It also serves as a temporary point of blame for instability. If there are outstanding questions about the cost of potential tariffs – or higher defence spending – don’t blame Labour, the narrative will go. Blame Trump.
But this kind of cover won’t last long. If Trump resists his worst instincts and does indeed make good on his promises to get the public finances in order, Labour is going to have an increasingly difficult time explaining its own decisions to ramp up borrowing and expand the influence of the state into the private sector.
It’s possible that the Government has already clocked this. Reeves’s first Mansion House speech not only noted that she was looking forward to “working closely” with Donald Trump.
It was also an ode to “growth, competitiveness and investment”, with emphasis on regulation post-financial crash going “too far”. A strangling of business, she suggested, “we must now address”.
Very laissez-faire. Perhaps Labour doesn’t intend to go it alone after all.
Kate Andrews is Economics Editor at The Spectator