“I wish I could tell everyone not to worry, that it’s all going to change and settle down, but I honestly don’t think it will,” says Lord Darroch on the current geopolitical turmoil ahead of his keynote speech at the ACT’s annual conference. In fact, he sees the current period of instability lasting until the US mid-term elections in November 2026.
Lord Darroch is speaking from a position of authority – back in 2017 when he was the UK’s ambassador to the US, Darroch wrote in a confidential cable that the US president’s government was “uniquely dysfunctional”. The US president in question was, of course, Donald Trump, at the start of his first term in office. When the contents of this, and other confidential letters and cables, were leaked to the media in 2019, Darroch felt he had no choice but to resign. The rest, including his elevation to the House of Lords, is, as they say, history, albeit one that is now repeating itself.
Except this time, Trump has hit the ground running, surrounded by his own people and equipped with the benefit of having already served four years as one of the most powerful leaders in the world.
“This is really about the reordering of the global system, a rules-based system we have worked under ever since the Second World War,” Lord Darroch says. “And to get to where he wants to get to, he has to smash up a lot, including the post-war international security system and the current international trading system.”
Lord Darroch says he can draw on his knowledge of President Trump’s first term of office to offer some tentative predictions for how the second term will unfold. “The first term was disruptive, but the second will be different for several reasons,” he says. “The first is that he feels he has a lot more legitimacy – he won a popular majority as well as the electoral college, and he did better in every state and every demographic [than in the 2016 election].”
The second point is that Trump spent most of the first term learning how to move the levers of government. Since then, he has had four years to plan and assemble a team of “supporters, enablers and amplifiers” and think about what he wants to achieve in his second term.
He's a man in a huge hurry
And yet the president’s blitz on tariffs on 2 April appeared to take many by surprise. Lord Darroch believes this was for a combination of reasons. “I don’t think people were paying enough attention, they were not thinking about how different his second term would look and how the guardrails had disappeared.”
The second reason is that there was a form of “optimism bias… that this was all just about negotiating tactics, that he would make threats but not actually carry out the threats”. But, according to Lord Darroch, “these were decades of beliefs and intentions and policy ideas that he was always going to try to deliver”.
However, as Lord Darroch observes, many decades ago the UK prime minister Margaret Thatcher said “you can’t buck the markets” and following the chaos in the US treasuries market, Trump was forced to call a temporary halt to almost all of the proposed tariffs. “It is the markets, especially the bond markets, that impose financial and budgetary orthodoxy on governments,” he says.
However, Lord Darroch does not see the current situation being resolved any time soon – in fact he sees the US mid-term elections in 2026 as a key date. If Trump loses control over the US congress, then this could place a brake on his agenda. And he certainly won’t have been able to negotiate the trade deals that he needs to within the 90-day “pause” period. “He's a man in a huge hurry. You see that in everything that he’s done in his first one hundred days.”
I just think the next two years are going to be an era of chronic uncertainty and you just have to adjust everything that you are doing to live with that
In the meantime, Lord Darroch is not overly optimistic. “It is not just treasurers, but lots of people working in all sorts of financial sectors who want stability. They want consistency and they want predictability so they can make investment decisions. And I just think the next two years are going to be an era of chronic uncertainty and you just have to adjust everything that you are doing to live with that.”
Philip Smith is editor of The Treasurer