OPINION
The Labour Government is facing its biggest and most daunting challenge yet. (Image: Kirsty Wigglesworth/PA Wire)
In the tariff war unleashed by US President Donald Trump, Prime Minister Sir Keir Starmer and Chancellor Rachel Reeves face perhaps their greatest challenge since last year's July landslide victory. First the good news for the PM. Labour is still fractionally ahead - or at least neck-and-neck - with Reform UK in the polls. Meanwhile the UK has only faced the minimum 10 per cent tariff from the US, although British car exports face the blanket 25 per cent applied globally.
Second, the bad. A misstep now could push Reform well ahead, while economists are already querying the sense of proposed retaliatory tariffs, as well as the limited headroom the Chancellor left herself given her deficit rule. Cars and auto parts are the UK's largest export of goods to the US. Sir Keir will then relax some rules over electric vehicles and green targets. This will wind up many on the Labour benches and could bleed support to the Greens and Lib Dems. Yet, it could also undercut Reform's position that Labour's green policies are penalising poorer people.
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The government could also use the crisis to its advantage, catalysing new investment while simultaneously applying anti-dumping practices to avoid an influx of cheap goods diverted from the US market.
Get it right and Labour might see its fortunes change, gaining instead a reputation for sound fiscal management. Voters tend to prefer a calm head and continuity in crisis, even if Labour must sideline its plans for deficit reduction.
Get it wrong however and Labour may lose what little credibility it has left on economic management. Critics would claim the government and Reeves in particular should have allowed more wiggle room for an unforeseen crisis like the Trump tariffs.
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This comes as the government faces both the likely loss of the Runcorn constituency in an upcoming by-election to Nigel Farage's insurgent Reform UK, the latter also likely to flip many council seats from Labour in the May local elections.
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Labour therefore faces a gigantic threat in how it manages the Trump's tariffs. The fact Britain has been hit less severely than other peer countries both gives Sir Keir a sporting chance but also means voters would be less forgiving if he gets it wrong.
Cosying up to Brussels is also likely to look foolhardy given the EU was slapped with a 20 per cent tariff, double that of the UK (a Brexit dividend if ever there was one). Voters flirting with Reform will certainly be eagle-eyed over this.
The PM and Chancellor must now navigate their choppiest waters yet since taking office. With little room for a slip-up, how they respond could define this government.