A leading Western leader announced an unorthodox economic policy that panicked financial markets, pushed the country's currency and fueled warnings about terrible long-term consequences.
President Trump announced last week that his full tariffs did all of this, but before him, former British Prime Minister Liz Truss made 44-day tax cuts in the fall of 2022.
The similarities between Mr. Trump and Ms. Truss are shocking, but there is one crucial difference: she was forced to revoke tax cuts within a few days and kicked out of office by her own Conservative Party within six weeks, the shortest term for Prime Minister in British history.
For some analysts, this difference is a tribute to the flexibility of the British parliamentary government and a beneficial distinction between the UK and the US. So far, Mr. Trump has vowed to stick to tariffs, whether the massacres they cause in the market or trigger a recession, it seems very few people can force him to change course.
“Trusts really can only harm the UK,” said Jonathan Portes, professor of economics and public policy at Kings College in London. “Ultimately, British institutions, especially parliament and the media, are enough to ensure that the system works.”
“It remains to be seen whether this is the case in the United States,” he added. “If it is not, the whole world will pay the price.”
Mr. Trump, who reached the UK with 10% tariffs, has acted like a country on the verge of crisis. To put the UK auto industry on shore, current Prime Minister Keir Starmer announced that he will relax rules for luxury manufacturers such as Aston-Martin and McLaren to phase out petrol and diesel-powered cars by 2030.
However, when asked Monday whether Mr. Starmer would comply with the government's fiscal rules that he would limit public lending even after Mr. Trump's tariffs, he invoked Ms. Truce's improper batch tax cuts.
“Liz Truss tried experiments in this country to abandon fiscal rules, stops and balances,” Mr Starmer said. “This has had a huge impact on workers' lives as inflation and interest rates pass through the roof.”
Like Mr. Trump and his obsession with tariffs, Ms. Truss is ideologically committed to dropping tax policies. Like him, she is an outlier.
She plans to fund her tax cuts by increasing borrowing, which economists suspect. At the moment when the UK and other countries are battling the rising energy prices and cost of living crises, she proposed an inflation policy. She refused to submit her plan to be reviewed by the government's fiscal regulator, the Office of Budget Responsibility.
The market responded by pushing the torpedo stocks of British companies toward stocks with the US dollar. The International Monetary Fund warns of financial instability in the UK.
As a smaller economy, the UK is more susceptible to these gyroscopes than the United States. Under Ms. Truce, yields on government bonds stimulated concerns about the credit crisis and ultimately led to her failure.
Even if Trump’s tariffs were introduced, yields on the Treasury bill fell, reflecting the traditional position of the United States as a safe haven for investors and protecting the president from some of the pressures Ms. Truss faced. Although on Monday, they also started to rise.
Within a few days, Ms. Truss withdrew the tax cut and rejected her Chancellor Kwasi Kwarteng, the principal architect of supply-side policy. The Bank of England stepped in to support UK bonds, while market turmoil subsided. But Ms. Truss' credibility was destroyed. Her senior party members resigned after she told her she had lost her faith.
“Like trusses, market responses are not only driven by actual policy changes, but are also hurt in both cases, but also by their attempts to undermine the institutions that normally restrict policies,” said the Port Professor.
Regarding Ms. Truce's all mistakes, some economists believe that her tax cuts may be less radical than Mr. Trump's tariffs. In different financial environments, her supply side agenda is relatively traditional for a central government of rights. But Ukraine has triggered inflation after the coronavirus pandemic and Russian invasion of Ukraine, which has led to rapid increase in borrowing costs by central banks, with high tax relief rates that convey bad news.
“The biggest similarity is the ability crisis,” said Kenneth Rogoff, a professor of economics at Harvard. “Liz Truss' policies may make sense in some other worlds. But they just stand out from the blue, so they don't have any credibility.”
Professor Rogoff said Mr. Trump’s tariffs have even less credibility among economists, especially because they seem to be out of touch with any strategy. “Trump hasn't articulated where we're going, and it's hard to find anyone who isn't a paid PR person thinks it's a good idea,” he said.
