A FEW months ago, on Question Time, an audience member asked the panel, with frustration and irritation, when Donald Trump was elected master of the universe? He asked in despair, reflecting on the sweeping, colonial statements that the president had made about Greenland, Gaza and Ukraine.
This week, the president of the USA discovered that he is not master of the universe – and when the bond markets plummeted, and risked devastating the US economy and federal finances, he finally heard a message that others have been stressing since he unfurled his menu of tariffs.
We had already been adjusting to a new global order on security and defence. The past few days have ushered in a new world of finance and economy. The question for Scotland is less to do with how we might influence what happens next – though that is important – and more to do with how we focus on the strengths of our own economy and the trade relationships that will protect our goods and industries.
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For a small island nation like Scotland, trade is crucial to our economic growth and resilience. We believe in free and open trade and international business activity.
That means that although much focus has been on the tariffs that directly impact on Scottish goods and industries, there is a significant secondary or indirect impact from tariffs implemented on other jurisdictions. It will impact on the supply chain, resulting in weaker growth, inflation, wider instability and increased borrowing costs.
The USA has long been an important trading relationship for Scotland. It is the second-largest export market for Scottish goods and services, after the EU. Last year, exports to the USA were worth £4 billion, equivalent to 17% of the value of all Scottish goods exports.
A quarter of those – it won’t surprise you – were beverages. But other key Scottish exports include machinery, pharmaceuticals and chemicals. Interestingly, Scotland had a modest positive balance of trade for goods exports to the USA in 2024.
The relationship works both ways, because the USA is also our largest inward investor. There are 735 US-owned enterprises in Scotland, employing more than 115,000 people.
While Trump has bowed to the markets after multiple days of great instability, his suspension of higher tariffs for 90 days also creates months of uncertainty. That will impact business investment decisions.
The USA has been the single biggest originator of foreign direct investment projects into Scotland – accounting for 19% of them in 2023. What investor is going to make decisions during those 90 days, until they see what will happen next?
So, after days of upheaval, we now face the prospect of months of uncertainty.
That is why it is so important to look to what we do control. While exports and inward investment have their place, we do hold some cards ourselves. That is what I focused on in my comments this week.
At a time when businesses and households face the prospect of slowing economic activity and higher costs, the UK Government should consider the costs that they can lift. There are two in particular that are most urgent. The first is energy costs – which continue rising, and drive higher costs for everybody. The second is the hike in employers’ National Insurance contributions.
Labour promised us that energy bills would fall if they were elected. Since then, we have had two or three increases already. These increases have driven up the cost of everything that relies on energy, which is everything from grocery bills to household costs. As the global economy faces the headwinds caused by Trump’s ill-fated policies, the UK Government needs to lift the burdens that are within its gift.
There was nothing about hiking employers’ National Insurance contributions in Labour’s manifesto, and yet that is what every business has had to factor in as of April 1 this year. This is essentially a job tax – it limits the funding that an employer can now invest in workers because they are paying more to the Government for every worker.
Wage increases will be stymied, investment in training and skills will stall and job creation will slow down. All issues that we could really do without right now in light of the global economic crises.
Most of us are sympathetic that there is very little the Prime Minister can do to change President Trump’s mind. Only the bond markets appear to have had that impact. But what we need from the Prime Minister right now is quick decisions on how to support households and businesses through these troubled waters.
He can start with lifting the greatest cost burdens – which are energy prices and employers’ National Insurance contributions.
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