A diplomacy tightrope for Britain’s Starmer after Trump’s tirades

This report is taken from this week’s CNBC UK Stock Exchange newsletter. As you see? You can subscribe Here.

Transfer

British diplomats have long boasted about their so-called “special relationship” with the United States.

The phrase was coined by Britain’s inspirational wartime leader, Winston Churchill, when he famously described how an “iron curtain” had descended on Europe in March 1946.

speech It was delivered at Westminster College in Fulton, Missouri, hometown of then-US president Harry Truman, a copy of which was shown in advance.

Warning against the threat to democracy posed by the Soviet Union, Churchill said: “Neither the definitive prevention of war nor the continued rise of world organization will be achieved without what I call the fraternal unity of the English-speaking peoples.

“This means a special relationship between the Commonwealth and Empire and the United States.”

Many countries pride themselves on their special relationship with the United States, including Israel and Canada, both of which have previously used the term.

France is often described as America’s “oldest ally,” a phrase former President Joe Biden used when he hosted French President Emmanuel Macron at the White House in December 2022 for his administration’s first state visit.

But no “special relationship” is more formal than the one between the United States and Britain, based on close security and intelligence ties established during the Cold War, where the two have a nuclear cooperation agreement and a deeply integrated defense industrial complex.

Ironically, although countless U.S. presidents have used the term, none have used it as frequently as President Donald Trump.

In September last year, the White House even published a fact sheet titled “Special Relationships”: “The bond between the United States and the United Kingdom is unlike anything anywhere else in the world, and we will always be friends.”

All this has left Prime Minister Keir Starmer walking a tightrope as he responds to Trump’s threat to impose additional tariffs on eight European countries, including the UK, from next month if they do not support his bid to buy Greenland.

Unlike French President Emmanuel Macron, who called on the EU to use its “anti-repressive tool” against the US – which seems inconceivable but nevertheless reflects the position the bloc finds itself in – Starmer stated that he did not support retaliatory tariffs if Trump went ahead with the proposed tariffs and insisted that “a tariff war is in no one’s interest”.

While Starmer made clear that “any decisions regarding the future status of Greenland rest solely with the people of Greenland and Denmark”, he was also careful to highlight the benefits of Britain’s close partnership with the US and the values ​​the two countries share in his speech on Monday.

“We must always remember that it is in our national interest to continue working with Americans when it comes to defence, security and intelligence,” Starmer said. he added.

This was skillful diplomacy, although it would reinforce the perception among domestic critics that the “never here Keir” spends more time on foreign affairs than on domestic issues.

He was also brave. Many in Starmer’s Labor Party would like the prime minister to take a tougher, more Macron-like stance on Trump. So did much of the British public.

As actress Vanessa Williams sang the American national anthem at London’s O2 Arena ahead of Sunday night’s NBA game between the Memphis Grizzlies and Orlando Magic, a man shouting “Leave Greenland alone” was applauded by a crowd admittedly well-intentioned to US culture.

Skeptics include some from the Foreign Office (the UK’s equivalent of the US State Department) who intensely dislike the way Starmer has flattered Trump by, for example, inviting him to an unprecedented second state visit.

But many in the department recognize the value of Starmer maintaining a close relationship with someone who, while extraordinarily unpredictable, will at least pick up the phone and talk to him.

But that claim is in danger of being destroyed after Trump posted social media posts earlier yesterday in which he accused Britain of “an act of great stupidity and complete weakness” for ceding the Chagos Islands (an archipelago in the Indian Ocean that has been British territory since 1814) to Mauritius. This was despite Trump saying he had a “feeling it was going to work out very well” when the announcement was made in February last year.

The relationship between the two men will also be tested after Britain yesterday approved a new Chinese “mega embassy” on the outskirts of the City of London despite the White House’s concerns about the site’s proximity to nearby sensitive data cables linking the Square Mile’s financial services industry.

Limited options

However, Starmer’s approach can also be seen as extremely pragmatic in that he accepts that the UK, which is outside the EU’s single market, cannot harm the US too much with tariffs, given the size difference between the two economies.

In fact, the UK has a lot to lose, with its goods exports to the US reaching a total of $68.2 billion in 2024.

This is particularly the case for Britain’s beloved car manufacturing sector, which sold £10 billion ($13.4 billion) worth of goods to the US in the 12 months to the end of June last year, becoming the biggest British exporter outside the pharmaceutical industry, which is now duty-free following a deal last month.

This agreement was hailed as a great success at the time; particularly in terms of paving the way for potential investments in the UK by US pharmaceutical manufacturers. Bristol Myers SquibbHowever, it remains unclear to what extent Greenland-related tariffs can be applied.

Views differ on whether new tariffs on UK goods, on top of the 10% already imposed, could push the UK into recession. Consultancy Capital Economics believes these measures would shave between 0.3% and 0.75% off UK GDP, which could lead to a recession if implemented quickly.

But others disagree. Simon French, chief economist and head of research at investment bank Panmure Liberum, tweeted: “A flat 10% tax on ~£60bn of goods is not significant enough to change the broad growth outlook for 2026.”

He suggested that “a more sensible strategic response from Europe” would be capital account retaliation.

European NATO countries hold $2.8 trillion worth of U.S. Treasury securities, $889 billion of which are in the United Kingdom alone. If Trump continues to follow through on this latest threat, watch for a possible resurgence of the “everything but America” ​​trade seen after “Independence Day” on April 2 last year.

Markets already provide an example of this.

Danish pension operator AcademicianRetirement He said he sold $100 million in the US Treasury. Anders Schelde, the fund’s chief investment officer, said this was due to “poorness”. [U.S.] governance financing” – but tensions with the US “did not make the decision any harder to make.”

Meanwhile, investors fled U.S. assets on Tuesday, selling stocks, bonds and the dollar in favor of safe-haven investments such as gold and silver.

If Europe continues to flee American capital, this will certainly be more effective than self-destructive retaliatory tariffs.

CNBC’s best TV picks

Chris Southworth, general secretary of the UK International Chamber of Commerce, is urging European countries to focus on diplomacy as President Trump threatens additional tariffs on Greenland.

Danish foreign policy expert Sten Rynning warns that Europe should be ready for a trade war with the USA over Greenland.

Jane Foley, head of Currency Strategy at Rabobank, discusses the latest UK GDP figures for November, which were better than expected.

—Holly Ellyatt

you need to know

Trump launched a tirade against the UK. The so-called “special relationship” between the US and the UK appeared to be damaged on Tuesday after Trump issued a tirade against London’s decision to cede sovereignty of the Chagos Islands to Mauritius.

Britain is trying to work its magic on Trump to eliminate the threat of Greenland tariffs. At a press conference on Monday, Starmer said Britain highly valued its long-standing special relationship with the US, but only Greenland and Denmark could decide the island’s future.

Is the UK likely to ban social media for under-16s? Australia’s social media ban on children under 16 has attracted worldwide attention, and governments around the world are considering implementing similar policies. England is probably next.

—Holly Ellyatt

quote of the week

In the markets

UK shares fell last week as Trump stepped up his rhetoric against European countries over their resistance to his bid to incorporate Greenland into the US.

FTSE100 It fell 0.67% to 10,126.78 on Tuesday, from 10,137.35 a week ago.

Meanwhile, sterling has rebounded against the US dollar as employment data from the Office for National Statistics showed unemployment remained steady at 5.1% in the three months to the end of November. After falling earlier in the week, the pound sterling remained at $1.3435 against the US dollar on Tuesday, compared to $1.3418 last Wednesday.

Elsewhere, yields on the UK government’s benchmark 10-year bonds – also gilts – It rose to 4.464% on Tuesday compared to 4.359% last Wednesday.

—Hugh Leask

approaching

21 January: UK inflation rate for December
January 22: January retail sales
23 January: GfK consumer confidence for January

—Holly Ellyatt