Diplomatic thread for British Starmer after Trump’s speech

This report is from this week’s CNBC UK Exchange newsletter. Do you like what you see? You can subscribe Here.

Sending

British diplomats have long been proud of the so-called “special relationship” with the US.

The phrase was coined by Britain’s inspirational wartime leader, Winston Churchill, when he famously described the fall of the “Iron Curtain” across Europe in March 1946.

His words Delivered at Westminster College in Fulton, Missouri, the home state of then-US President Harry Truman, a copy was previewed.

Warning of the Soviet Union’s threat to democracy, Churchill said, “Without what I have called the brotherhood of the English-speaking peoples, neither the sure prevention of war nor the steady rise of world organization is possible.

“It represents a special relationship between the British Commonwealth and Empire and the United States of America.”

Many other countries are proud of their special relationship with the US, including Israel and Canada, both of which have used the term in the past.

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

But the “special relationship” between the US and Britain is based on close security and intelligence ties forged during the Cold War, less formal than the pair have a nuclear cooperation agreement and a deeply integrated defense industrial complex.

Interestingly, while countless US presidents have used the term, no one has used it as often as President Donald Trump.

In September of last year, the White House even released a fact sheet called “The Special Relationship,” which stated: “The bond between the United States and the United Kingdom is unmatched anywhere in the world, and we will always be friends.”

All of this left Prime Minister Keir Starmer on a tightrope as he responded to Trump’s threat to impose additional tariffs on eight European countries, including the UK, from next month unless he backs his bid to buy Greenland.

Unlike French President Emmanuel Macron, who called on the EU to use its “anti-coercion tool” against the US – a seemingly absurd but nonetheless indicative of the bloc’s position – Starmer said he would not support retaliatory tariffs if Trump went ahead with his proposed tariffs and insisted he was “not interested in a tariff war”.

Starmer also emphasized the benefits of Britain’s close partnership with the US and the shared values ​​of the two countries, while making clear that “any decision on the future status of Greenland rests solely with the people of Greenland and Denmark”.

“We must always remember that it is in our national interest to continue to work with the Americans on defense, security and intelligence issues,” Starmer added.

It was deft diplomacy, even if it fueled a perception among critics at home that “never here Keir” was spending more time on foreign affairs than domestic affairs.

It was also brave. Many in Starmer’s Labor Party want the prime minister to be tough on Trump, like Macron. And so does most of the British public.

As actress Vanessa Williams sang the American national anthem at London’s O2 Arena on Sunday night before the NBA game between the Memphis Grizzlies and the Orlando Magic, a man who shouted “Leave Greenland alone” was applauded by a crowd that could be considered sympathetic to US culture.

Among the skeptics are some in the Foreign Office (UK’s equivalent of the US State Department) who strongly dislike Starmer praising Trump by, for example, inviting him to an unprecedented second state visit.

Most in the department recognize the value of having Starmer at least pick up the phone and have a close relationship with the person he’s talking to, even if it’s very unpredictable.

That argument is in danger of disappearing after Trump’s social media posts earlier yesterday, in which he accused Britain of “an act of colossal stupidity and total weakness” in handing over the Chagos Islands (an Indian Ocean archipelago that has been a British territory since 1814) to Mauritius. This was despite Trump himself saying in February of last year that he had a “feeling it was going to be really good” when he made the announcement.

The relationship between the two men will also come under scrutiny after Britain approved a new Chinese “mega-embassy” on the outskirts of London yesterday.

Limited options

Nevertheless, Starmer’s approach can be seen as deeply pragmatic, as he recognizes that the UK is unable to inflict major damage on the US with tariffs outside the EU’s single market, given the difference in the size of the two economies.

In fact, with UK exports to the US worth $68.2 billion in 2024, it has a lot to lose.

This is especially true of the following Britain’s favorite automotive industryit sold 10 billion pounds ($13.4 billion) of goods to the U.S. in the 12 months to the end of June last year, making it the biggest British exporter currently exempt from tariffs, apart from pharmaceuticals. The deal was made last month.

The deal was hailed as a major breakthrough at the time, particularly as it opened up potential investment in the UK by US drug manufacturers. Bristol Myers Squibbbut it is unclear to what extent tariffs may be imposed on Greenland.

Opinions differ on the new tariffs 10% applied to UK goods — May push Great Britain into recession. Consultancy Capital Economics estimates that at 0.3%-0.75% of UK GDP, it could trigger a recession if applied too quickly.

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

He proposed capital account retaliation as “Europe’s logical strategic response.”

European NATO countries own $2.8 trillion of US Treasuries, including $889 billion in Britain alone. If Trump moves forward with this latest threat, look out for a potential resurgence”Anything But America” trade seen after “Freedom Day” on April 2 last year.

Markets are already showing this.

Danish pension operator Academic pension said that Sells $100 million in US Treasuries. Anders Schelde, the fund’s chief investment officer, said it was “poor (US) management finance”, but tensions with the US “didn’t make the decision difficult”.

Meanwhile, investors fled US assets on Tuesdayselling stocks, bonds and dollars and turning to safer investments such as gold and silver.

If Europe continued to flee American capital, it would be more profitable than self-damaging retaliatory tariffs.

Top TV picks on CNBC

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

Danish foreign policy expert Sten Rynning warns that Europe should prepare for a trade war with the US over Greenland.

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

– Holly Ellyatt

Need to know

Trump railed against Britain. so-called “special relationship” Relations between the US and Britain remained bruised on Tuesday after Trump protested London’s decision. The sovereignty of the Chagos Islands was transferred to Mauritius.

Britain is trying to work its magic on Trump to remove the threat of tariffs on Greenland. At a press conference on Monday, Starmer said the UK valued its long-standing special relationship with the US, but that Only Greenland and Denmark can decide the future of the island.

Could Britain ban social media for under 16s? Australia’s ban on social media for children under 16 has drawn global attention, and governments around the world are considering implementing similar policies. Great Britain is likely to be next.

– Holly Ellyatt

Quote of the week

In the markets

British stocks fell last week as Trump stepped up his rhetoric against European countries that have opposed the US annexation of Greenland.

The FTSE 100 fell 0.67% to 10,126.78 on Tuesday, down from 10,137.35 a week earlier.

Meanwhile, the pound recovered against the US dollar as jobs data from the Office for National Statistics showed unemployment held steady at 5.1% in the three months to the end of November. Sterling, which had fallen earlier in the week, was at $1.3435 against the greenback on Tuesday, down from $1.3418 last Wednesday.

Elsewhere, the benchmark 10-year UK government bond yield — also known as golds — rose to 4.464% on Tuesday, compared to 4.359% last Wednesday.

– Hugh Leask

It’s coming

January 21: UK inflation rate for December
January 22: Retail sales for January
January 23: GfK Consumer Confidence in January

– Holly Ellyatt