Was Black Monday the day a new global recession started?

As markets plunged, Donald Trump refused to budge on tariffs, instead urging Americans to stop panic-selling stocks. Keir Starmer would do well to avoid being caught up in the collateral damage, says Andrew Grice

It was Donald Trump’s Black Monday as stock markets around the world plummeted as they judged that his swingeing tariffs are here to stay – for a while, at least. It might soon be followed by what would be Trump’s global recession.

The US president is unrepentant, even though some of his allies are getting jittery. What Trump calls his “medicine” is already harming the patient. Given that Wall Street’s leading stock index, the S&P 500, fell on opening by more than 4 per cent, despite Trump urging Americans to stop panic-selling stocks, the day may yet be remembered as one when a new global recession started.

Trump will get the blame, just as John Major, the former prime minister, did after Black Wednesday in 1992, when the UK crashed out of the European exchange rate mechanism. The Conservatives did not recover their economic credibility, and even a growing economy could not prevent a Labour landslide in 1997.

It was a slow death. In contrast, Liz Truss survived as PM for less than a month after her disastrous mini-Budget in 2022 spooked the markets.

That the whole world knows Trump has shot himself in both feet is cold comfort for Keir Starmer. It is dawning on him and his ministers that, even if the UK reduces its 10 per cent tariff by clinching a US trade deal, the UK economy is going to be badly damaged by a global trade war.

Ominously, the first assessment, by the consultancy KPMG, suggests GDP will grow by just 0.8 per cent this year and next (down from its previous estimates of 1.7 per cent and 1.4 per cent, respectively).

Hence a flurry of activity over the weekend as ministers suggested that globalisation is over, and the prime minister hit the phones from his Chequers country retreat to allies from Europe and Canada. He was sending two signals: the UK is open for business to boost trade with non-US nations, and that his refusal to criticise the US president does not stop him working with others to boost free trade.

In his first speech since Trump announced his tariffs, Starmer told workers and bosses at Jaguar Land Rover’s Solihull plant that “this is not a passing phase” but a “completely new world”. He said: “This is a moment for cool heads – nobody wins from a trade war… But it’s also a moment for urgency, because we’ve got to rise together as a nation to the great challenge of our age […], to renew Britain so we’re secure in this era of global instability.”

He pledged to work with other countries to lower trade barriers and insisted he would sign a trade agreement with the US only if it is “in the national interest” (hardly surprising).

His words suggested a US-UK trade agreement might now take longer than the end of this month, as ministers hoped. They also reflected a desire not to look like someone who is in Trump’s pockets, as his critics claim. He hinted he had told the president in private that “nobody welcomes tariffs” but, again, declined to criticise him in public.

The PM promised an “active government”, defining it as one which “rolls up its sleeves and gets on the pitch”. He offered the “downpayment” of two elements of a long-awaited industrial policy to “shelter” British companies from “the storm” – more flexible rules for the car industry on the switch to electric vehicles, and the investment of up to £600m in new health data research service in partnership with the Wellcome Trust.

While he promised “stability”, Downing Street rightly calculates it is not enough. Rishi Sunak and Jeremy Hunt provided it after the Truss disaster, but, as after Black Wednesday, the die was cast for the Tories.

So Starmer is keen to remind us that stability does not mean preserving the status quo – a wise move when voters are crying out for change, and Labour has promised it. Hence his talk of “rewiring” both industry and the government itself – by cutting regulation, but without smashing up institutions, as the populist right would do, or retreating into protectionism.

But for now, there are limits to the government’s economic reset. Answering the media’s questions, Starmer appeared to dash the hopes of Labour MPs that the government might relax Rachel Reeves’s fiscal rules. He also said Labour would keep to its manifesto commitment not to increase income tax, national insurance for employees or VAT.

“The first lever cannot be more taxes,” he said. I suspect it will be the second lever when the chancellor realises she cannot impose more spending cuts on the cabinet or Labour MPs as she draws up her Budget this October.

Starmer is making the right noises, but the challenge for him now is to turn rhetoric – going “further and faster” on securing economic growth, “turbocharging” this and “doubling down” on that – into delivering tangible gains that the public notice. That task will be all the harder if Trump delays a UK trade agreement.

However difficult a hand he has been dealt by events beyond his control, Starmer has to offer more than excuses; he must show voters he is making a difference. It won’t be easy.