The leading Western leaders announce unorthodox economic policies, panic in financial markets, drive the country's currency, and burn a blizzard of warnings about disastrous long-term outcomes.
President Trump did all this with his full tariffs announced last week, but before him was former British Prime Minister Liz Truss, who had 44 turbulent daily major tax cuts unfolding in the fall of 2022.
The similarities between Trump and Truss are impressive, but there is one important difference. She was forced to withdraw the tax cuts within days and, within six weeks, ousting the profession by her own Conservative Party, the shortest tenure of the prime minister in British history.
For some analysts, the difference is a homage to the flexibility of UK parliamentary governments, and a useful distinction between the UK and the US. So far, Trump has vowed to stick to his tariffs, whether they've caught them in the market or caused a recession.
“The trusses can only really damage the UK,” says Jonathan Port, professor of economic and public policy at King's College London. “In the end, British institutions, especially the Parliament and the media, were enough to ensure that the system worked.”
“We still don't know if that's a fact in the US,” he added. “If not, the whole world will pay the price.”
The UK, which Trump hit with 10% tariffs, is already acting like a country on the brink of crisis. To bolster the UK's automotive industry, current Prime Minister Kiel Starmer has announced that he will relax the rules of luxury automakers like Aston Martin and McLaren, which demand that petrol and diesel-powered cars be phased out by 2030.
But when Starmer was asked Monday whether he would stick to government fiscal rules that limit public borrowing, even in the wake of Trump's tariffs, he called Truss' false tax cuts a warning example.
“Liz Truss has tried to experiment in this country with financial rules, checks and balance aside,” Starmer said. “And that had a huge impact on workers' lives as inflation and interest rates went through the roof.”
Like Trump and his appeal to tariffs, Truss was ideologically committed to tax policies. And like him, she was an outlier.
Her tax cuts, which she had planned to fund by increasing borrowing, were skeptical by economists. She was proposing an inflation policy at a moment when the UK and other countries were fighting rising energy prices and the crisis of livelihoods. She then refused to submit a plan for scrutiny by the Budget Responsibility Bureau, the government's fiscal watchdog.
The market responded by torpedoing stocks in British companies and pushing the pound down almost equal to the US dollar. The International Monetary Fund warned of the UK's financial instability.
As a small economy, the UK was more vulnerable to these rotations than the US. The government's bond yields that surged under Ms Truss deprived her of fear of a credit crisis, which ultimately led to her downfall.
Even with Trump's tariffs rolled out, yields on the Treasury bill would decline, reflecting the traditional US status as a investor heaven, and protecting the president from some of the pressures Truss faced. But on Monday, they too began to rise.
Within days, Truss retracted the tax cuts and rejected Kwasi Kwarteng, the prime minister of Equelequer, the main architect of the supply-side policy. The Bank of England stepped in to support British bonds, and market turmoil calmed. However, Truss's reliability was shattered. She handed her resignation after a senior member of her party told her she had lost their faith.
“Like the truss, the market response is not just by actual policy changes, but by attempts to destroy the institutions that normally constrain policy, not only do they damage them in either case,” Professor Port said.
For all Truss' missteps, some economists argue that her tax cuts could be considered less radical than Trump's tariffs. In another fiscal environment, her supply-side agenda would have been relatively traditional for the central government. However, the tax cuts were not very long as they caused inflation and led central banks to quickly raise borrowing costs in the aftermath of the coronavirus pandemic and Russia's invasion of Ukraine.
“The biggest similarity is the crisis of capabilities,” said Kenneth Rogoff, a professor of economics at Harvard University. “Liz Truss' policy may make sense in other worlds. But they just came out of the blue, so they weren't reliable.”
Professor Rogoff said Trump's tariffs are even less reliable among economists, especially as they appear to be disconnected from the strategy. “Trump doesn't make it clear where we're headed,” he said.
