Keir Starmer has said he wants to shelter Britain from the storm of Donald Trump’s escalating trade wars.

Governments the world over are considering how best to respond to the turmoil unleashed on the global economy by the US president last week.

So far Britain has taken a measured approach, in contrast to the promises of retaliation from the EU, China and Canada. For the prime minister, however, there are tough economic and political considerations to weigh up.

The case for retaliation

Starmer won plaudits for his handling of Trump in late February following his charm-offensive trip to Washington. But since then the president’s divide-and-rule approach has galvanised international opposition – putting Starmer at risk of appearing out of step with his G7 counterparts.

Retaliation could prove popular with a domestic audience, helping to shift the narrative from the gloom of the spring statement. Mark Carney has bolstered Canada’s ruling Liberal party by taking a strong stand, while Emmanuel Macron has also benefited from tough talk. Surveys show a majority of western Europeans support retaliatory tariffs, including voters in the UK.

The political risk of being seen to appease a bully could also have economic consequences, should it imperil another of the prime minister’s priorities: resetting EU relations.

Even though trade with the US amounts to about £300bn in goods and services, the EU is significantly more important to the UK.

It is Britain’s closest market and one worth about £800bn. Tagging along with an increasingly isolationist US could be negative for Britain when tougher-talking G7 leaders are looking to forge closer relations with like-minded nations.

Cosying up to the White House could, also, be politically expensive and of limited economic benefit. The gains would mostly be from damage limitation.

The last time Trump was in the White House, Boris Johnson sought a post-Brexit deal that would have been far broader than anything under consideration now. Back then, government analysis suggested such a deal could have added about 0.07% to the size of the UK economy in the long run, or about £1.6bn. That is essentially a rounding error in a £2.6tn economy.

This time the UK has sought a narrower deal that could involve a tax cut for big US tech firms in exchange for lower tariffs. Even with a red line to allow for the blocking of lower quality US food imports – such as hormone-fed beef and chlorinated chicken – that is still a tough sell.

The benefits of appeasement

Labour ministers are quick to point out that Britain has escaped relatively lightly compared with many other countries. Darren Jones, chief secretary to the Treasury, goes as far as to accept it as a “Brexit dividend”.

Rather than retaliate, the government hopes to talk up the support it is making available for businesses in increasingly hostile economic times. So far, it is a message that business leaders generally understand.

Retaliation would come with costs – not least for UK consumers who would notice higher prices in the shops for the US goods the government is considering hitting with tariffs, including:

Living costs were already on the rise before the talk of taxing American imports, with the Bank of England forecasting a fresh peak for inflation of 3.7%. Economists at the Bank reckon a tit-for-tat trade war would add to the economic headwinds and stoke higher inflation.

Retaliation could also have a limited impact. As a member of the EU, the UK had significantly more power to force the US to sit up and listen. Britain is the fifth-largest destination for US goods, worth about £59bn. But this well short of the £272bn figure for the EU.

The UK has greater clout in services where it is the US’s leading trade partner, alongside more than £1tn in shared transatlantic foreign direct investment.

Britain accounts for about a 10th of all US imported services. Retaliating by making life tougher for US banks and tech firms would be far more meaningful but it would involve the government choking off a key growth engine.

In contrast, refusal to erect trade barriers with the US, along with a deal to liberalise economic ties on services, could help the UK to forge ahead in the tech-heavy, AI-driven economy of the future: one that would outlast Trump as president.

Most economists reckon Trump’s trade wars are intended to forge a path toward cooperative deals in the long run, including with the EU and China. Striking an early deal could give Britain a first-mover advantage, positioning the country as an attractive destination for US companies and investment.

Given Trump’s ability to turn on a dime, it is a high-risk strategy however.