Markets plunged today after Donald Trump widened his trade war from Mexico, Canada and China.
The US president fuelled fears of a global trade war as he confirmed he will be imposing levies on the ‘atrocious’ EU.
Global stocks are on a decline due to the escalating situation, with the FTSE 100 dropping over 100 points at the start of trading. Meanwhile, stocks in Germany, France, and Asia are experiencing even more significant losses.
The US dollar is strengthening against all currencies as investors seek safe-haven assets, anticipating that rising inflation will lead to prolonged high-interest rates in the United States.
During recent remarks, Mr. Trump implied that Britain is not acting in accordance with expectations. However, there is a glimmer of hope for Keir Starmer as he also mentioned the possibility of resolving the issues through dialogue.
Mr Trump has made no secret that he intends to use tariffs as a political tool, demanding concessions on areas such as immigration as well as trade.
The aggressive stance could leave Sir Keir facing a choice between the US and EU, as he pushes for closer ties with Brussels at a summit today.
Asked about the prospect of tariffs by the BBC overnight, Mr Trump said: ‘UK is out of line but I’m sure that one… I think that one can be worked out.’
Mr Trump said his discussions with Sir Keir so far have ‘been very nice’, adding: ‘We’ve had a couple of meetings. We’ve had numerous phone calls. We’re getting along very well.’
In contrast, the president said tariffs will ‘definitely’ be placed on goods from the EU, describing the US trade deficit with the bloc as ‘an atrocity’ that means ‘they take almost nothing and we take everything from them’.
UK ministers have previously suggested the UK could avoid US tariffs because America does not have a deficit with Britain on trade in goods.
EU officials are thought to have already drawn up contingency plans for retaliating to US tariffs.
Sir Keir was cautious when asked about Mr Trump’s actions yesterday, telling reporters: ‘It is early days. What I want to see is strong trading relations.’
The PM added: ‘In the discussions that I have had with President Trump, that is what we have centred on – a strong trading relationship.’
Mr Trump has announced he will impose 25 per cent trade taxes on goods coming from America’s nearest neighbours and largest trade partners – Canada and Mexico – as well as a 10 per cent levy on Chinese goods.
All three nations have vowed to respond in kind to the US president’s actions, sparking fears of a global trade war.
The UK’s blue chip share index fell 105.8 points to 8568.2 – a drop of 1.2 per cent – soon after trading began at 8am.
The Cac 40 in France and Germany’s Dax both opened around 2 per cent lower, before paring back falls to stand around 1.6 per cent lower.
Asian markets suffered heavy falls overnight as they were the first to react, with Japan’s Nikkei slumping 2.7 per cent and the Hang Seng in Hong Kong 1 per cent lower, although mainland Chinese markets remain shut for the Chinese Lunar New Year holiday until Wednesday.
Carmakers are the biggest share casualties so far in Europe, with Volkswagen, Mercedes-Benz, BMW, Daimler Truck, Continental and Porsche dropping by around 5 per cent in early trading across Europe.
Firms such as Volkswagen and Vauxhall owner Stellantis have operations in Mexico and are therefore exposed to the Mr Trump’s tariffs, while cars are also among the US president’s major gripes with the trade deficit that the US has with the EU.
Cars are among the biggest European exports to the US, alongside pharmaceuticals, and other machinery.
In the UK, luxury car firm Aston Martin was 4 per cent lower.
The pound edged lower against a strengthened US dollar, down 0.6 per cent at $1.23, but rose 0.5 per cent to 1.20 euros as the single currency came under pressure.
Mr Trump’s comments are likely to overshadow Sir Keir’s visit to Brussels today, where he is continuing efforts to ‘reset’ relations with the bloc.
Sir Keir will urge EU countries to shoulder more of the burden of aid for Ukraine at the meeting in Belgium.
He will call on them to follow UK and US sanctions on Russia’s faltering economy and praise Mr Trump’s threat of further restrictions, which he will claim has ‘rattled’ President Putin.
The defence-focused visit will also see Sir Keir meet Nato secretary-general Mark Rutte at the alliance’s headquarters.
They could discuss Mr Trump’s insistence he wants to annex Greenland, currently the territory of Nato ally Denmark, and make Canada the 51st state of America.
‘I’m here to work with our European partners on keeping up the pressure, targeting the energy revenues and the companies supplying his missile factories to crush Putin’s war machine,’ Sir Keir said.
‘Because ultimately, alongside our military support, that is what will bring peace closer.’
The Conservatives have set the Prime Minister five ‘tests’ over his approach to Brexit, and claim that if he fails to meet them it will prove he is willing to ‘undo’ the settlement the Tories reached while in power.
Among the commitments the Tories have demanded are for the UK to have continued freedoms over negotiating trade deals, and control of its borders outside the single market.
