Can the UK escape Trump’s market meltdown?

They say that when America sneezes, the world catches a cold, writes James Moore. Well, the US president’s economic vandalism is certainly causing plenty of global illnesses

When Wall Street reopened this morning, traders coolly assessed the radically changed economic landscape following Monday’s rout.

Although the stock tumble somewhat lost momentum overnight – the impact of which is so far less damaging than, say, the financial crash of 2008 – the US market has certainly given up all the gains it made upon Trump’s thumping election victory.

Yesterday, Nasdaq had its worst day since 2022; Dow Jones was down 400 points; and Tesla shares took a 15 per cent hit (with Trump vowing to “buy a brand new” car to offset the damage). The latter has managed to regain 3.5 per cent today.

Of course, it’s thanks to the president himself – with his tariffs wreaking havoc not just with America and neighbouring countries Canada and Mexico, but also China and in Europe, and here in Britain – that all this chaos has ensued.

The charges have been partially rowed back and these countries have since all hit back with levies of their own. Most recently, the Canadian province of Ontario imposed a surcharge on the electricity it sends to its southern neighbour. Further measures have been promised, with the inevitable retaliation.

The madness – because no other word will do – has inevitably sparked fears of higher inflation, higher interest rates, and a potential recession in the US. It has also raised questions over its willingness to chart a sane, rational and pro-growth course. Call it America’s Brexit moment, where investors look askance at what has been going on, and head for the exit.

Meanwhile, over in Europe, things look very different. Friedrich Merz, who is likely to be Germany’s next chancellor, has proposed a massive increase in state borrowing, with the money set to be spent on defence and infrastructure. The plans still require the support of the German Greens, but there are signs that the party is seeking compromise having submitted its own proposals.

Such a stimulus has excited the bond and the equity markets, amid hopes that these plans will give Europe’s struggling economic engine a much-needed shot in the arm. The German market has put on 23 per cent in six months. America’s benchmark S&P 500 is ahead by just 1 per cent over the same period. So much for “America first”.

China, too, has been looking at ways of encouraging a consumption-led boost to its stalling economy.

What about Britain? Chancellor Rachel Reeves is planning a borrowing-funded stimulus of her own, in the hopes of adding some juice to a stuttering economy. But she cut off her nose to spite her face by hiking business taxes to plug a hole in the public finances, which has led firms to shelve investment plans and prepare for job cuts.

This isn’t particularly relevant to the performance of the FTSE 100, which is one of the world’s most international markets and is dominated by dollar-reporting companies. Its biggest players are mostly immune to the troubles of UK plc.

But it also trades at a significant discount to the American market. AJ Bell’s Russ Mould says: “The US is the world’s largest economy, and home to its largest stock market, biggest bond market and reserve currency. If the US stumbles, it is hard to completely avoid some potential fallout. However, the UK market trades at a near-record discount to its US counterpart on the basis of earnings multiples (almost 10 points, as of a couple of weeks ago), so the UK has more downside protection.”

The old adage holds that if America sneezes, the rest of the world catches a cold. Whether that still holds true is open to question – although Trump’s economic vandalism is causing plenty of global illnesses.

As ever, Britain is stuck in the middle. As for its moribund market (up by nearly 5 per cent over six months), it might look a bit more attractive than it did, but if Europe can turn itself around while America descends into a nationalistic slop, it will not be the chief beneficiary.