Trump's tariffs & Mamdani's New York – can anything destroy America's economy?

Added: 2026-05-19

[00:00:00]Hello and welcome to a very special episode of Reality Check. I'm Michael Simmons, the Spectators economics editor.

[00:00:09]Today I'm delighted to be joined by my predecessor, Kate Andrews, who's now an opinion journalist at the Washington Post and also a host of a rival podcast called Make It Make Sense. Kate, we're so glad um to have you back. I kind of wanted to have a bit of an appraisal, not about me uh doing your job, but about um about Britain's economy um since since you've left it. At the time we're recording this, we've just had Q1 GDP figures that show something we're not used to uh in Britain growth. Um and growth that looks like it's it's better than your country, um America. Are you are you surprised by that news?

[00:00:50]>> I'm not surprised. Well, first let me say thank you for having me on your show. such a compliment and a privilege to be invited. This is so great and I haven't been in the studio before. It's um it's all very swanky now. I really like it.

[00:01:02]>> Was I surprised? Um it's early. These are early figures and they're only part of the story.

[00:01:09]>> Very often, I mean, I I covered economics in the UK for years. Very often the start of the year and the end of the year would tell two different stories. Sometimes because the UK would find itself in a mild recession. Uh sometimes because there was a pandemic.

[00:01:23]Hopefully neither of those things happen this year. Uh but growth can peter out.

[00:01:28]It's not to say it will happen, but it's to say that none of the other figures that I've been following from the States anyway look as if the UK is on some spectacular journey upwards towards, you know, a major growth year. Uh but you'll have to tell me what I've missed. What are you seeing?

[00:01:44]>> Well, it's I think it's exactly that, right? I mean, we've seen this in the last few years in the British economy.

[00:01:49]we get this weird uh kind of phenomenon where you get Q1 growth and everyone like is like Britain's growing again uh and then it peters out over the year and I think as we come into the summer it's going to be like pretty pretty negative.

[00:02:02]We're going to have um that's when you know fuel costs are going to go up because it's the next time the energy price cap increases. It's when we're going to see um the real impact of the Iran war. So, I'm not positive um about the rest of the year, but are you positive about your country, America?

[00:02:20]Because this is the real reason that when we knew you were you were visiting London, why I wanted to get you in is because you can answer for me. I do not understand the American economy at all.

[00:02:31]Because when Trump, you know, first first did his his tariffs, I thought, well, this, you know, economic logic says this is not going to be good. Uh America's economy is going to tank. um when the war with Iran started uh we you know we had the IMF saying countries like Italy, countries like Britain are going to be the worst hit. But in that same IMF forecast they actually increased their forecast for for America. So why is the American economy seemingly immune to any harm? This episode of Reality Check is sponsored by Artemis Fund Managers. When it comes to investing in financial markets, you've got a choice. You could follow the crowd and buy an index tracker fund which simply falls an index like the Footsie 100 for instance. That means you get all the companies in it, the strong performers and the weaker ones too. This is called passive investing. Or you could invest with an active manager like Artemis. Active managers use their skills and experience to actively identify the companies that they think are going to perform best and avoid the ones that they think will underperform.

[00:03:34]Or to use Artemis' fology, actively hunt down healthy profits. Arteimus the profit hunter be a hunter not a tracker as with all investments your capital is at risk >> it's a big question and I think there are a lot of answers to it I mean the first thing I will say is is people are feeling the strain Donald Trump's approval ratings particularly on the economy where he tends to be much more successful uh are in the gutter that is because energy costs are going up in America the cost of gas at the petrol station yeah >> is going up across the country not just in the higher back states. People are feeling the strain. They felt the strain of the tariffs last year. Not to the extent that many people predicted, but also Donald Trump rolled so much back and took longer to actually make decisions and made a lot of exceptions in different areas, never saying out loud the thing that his policy was reflecting, which is that tariffs or taxes on Americans. They did feel it. Uh you had Donald Trump himself and his officials coming out saying, you know, you might have to buy fewer toys for your kids this Christmas. So, Americans have felt it. that's being reflected in the polls.

[00:04:38]>> But why does America continue to grow?

[00:04:41]What I like to say is despite its politicians and political interference, >> there are a lot of reasons. America pursued energy independence. It's a huge factor. America is a net exporter >> of energy. That completely changes the calculation. Again, gas prices are still going up, but it is a totally different ballgame if you can be pretty confident that you can take care of your own energy demands.

[00:05:08]>> Yeah.

[00:05:09]>> Within your own country. It's not perfect again. And we import a lot of petroleum and things like that, but it's a it's a huge difference. Far more flexible labor market.

[00:05:18]>> The US is, I think, fair to say, roughly at full employment right now. The unemployment rate hovers around 4%. If you want a job in America right now, there are a lot of vacancies and we have a skill set issue.

[00:05:30]>> Yeah.

[00:05:31]>> Um we have a a serious skill set issue, especially when it comes to higher skilled manufacturing jobs. Companies like Ford are desperate to hire people in really good salaries. They're struggling to do so. But there are jobs available. I do not think you can overlook AI anymore. Uh there's a lot of speculation, a lot of forecasts in America about how much of our growth is really coming from this particular sector. I don't have the answer to that, but I'm not going to be surprised if it's quite a bit. Um, and people will be critical of that. They'll say it's very selective. Uh, some people might compare it to when Biden went on his printing spree and pushed trillions of dollars into the economy. And that's why, you know, people don't necessarily feel the benefits. I'm not sure that's a completely fair comparison, not least because a lot of normal people are using AI in lots of different capacities.

[00:06:18]Smaller businesses are adopting it. So I think this the benefits of AI far outweigh the small sector and you know that raises interesting questions about you know where is Europe's anthropic >> uh so if you want to look to why America's growing you know why can't companies develop and build like that in in Europe um and >> why why can't they right I mean Britain has produced a lot of the brains behind AI should you know shouldn't we be the a powerhouse in the way that America clearly is >> well you should but I mean what are you facing in terms terms of regulation, what are you facing in terms of caps? Uh what are you facing in terms of potential changes to the tax code?

[00:06:58]You've got absolutely no idea. And I also think the sentiment is completely different. I'm going to put this more on countries like perhaps France than I would on the UK. Uh but it's not just a negative attitude or a fearful attitude which lots of people have towards AI um and and needs to be engaged with. It's a sort of if we crack down on these companies then we're doing something.

[00:07:18]>> Yes.

[00:07:19]>> Right. we must be seen to be doing something as a government, so let's just hit them with the stick rather than let's watch them grow. That's much more the American attitude. Again, imperfect, but you've got a state like California, a very blue state with a lot of regulation that has still managed to have a thriving successful AI base, right? Uh the most famous one in the world. So, if they're able to do it, Europe should be able to do it.

[00:07:42]>> Yeah.

[00:07:43]>> America is a very innovative place, right? People ask for forgiveness. They don't ask for permission. And I think if you combine all these factors, it does help to explain why America's growth rate has been steady even when politicians like Donald Trump, who could have actually boasted an incredible economy had he not implemented tariffs and not decided to opt into this war.

[00:08:02]Perhaps even when he does things to ruin it, America still seems to get by. But I think your framing is important because it's important to say that it could be better, >> right? Just because America on paper looks good doesn't mean that we haven't actually lost a lot of opportunity.

[00:08:17]>> But are you expecting it to get to get worse? Like I I totally accept what you're saying that it's, you know, if these things hadn't happened, maybe there'd be even more boom in America, but I'm still looking at America, you know, from London and saying we I wish we had an economy a bit more like yours.

[00:08:33]Do you think that Trump will run out of road and, you know, tariffs will have more of an impact than they're maybe having now? And and will the Iran war have have more of an impact? I mean, are you bracing for like an inflation shock?

[00:08:47]>> Well, inflation just came in at 3.8% I believe on the month in America, which is nearly double the Fed's target. Uh I would say that inflation already is a problem. It's nothing like what you and I were writing about in 2022 here in the UK when we were looking at double digits. Uh, but it's painful and I think that that alone already is is definitely a problem. What am I bracing for? I'm I'm bracing for Americans to continue to say that they don't feel stable, that they aren't comfortable with the place the economy is in, that they feel like it's um worse than it should be. And I think those criticisms are valid even if the economy on paper doesn't look awful.

[00:09:28]And even if not every single factor is the president's fault, enough intervention has been done that it's very credible. I think to blame Washington DC. Um, and just to go back to the UK really quickly, I mean, I really hope that the UK gets some great growth figures. That would be that would be fantastic. Um, it's been so long. And I was following your great coverage of the budget not that long ago. The projections from the Office for Budget Responsibility are grim, not just for this year, but for the next five. It would be great if the UK got some unexpected growth, but I don't know what's changed. I don't know where the overhaul has been in housing or planning >> or any kind of significant institution or structure that would get it that growth. So I don't know why people would have like almost an imaginary thinking that it was going to come from nowhere.

[00:10:15]>> And I do fear and you can tell me if it is still the case that when politicians talk about growth in the UK, it is like this magic thing.

[00:10:23]>> Yeah, I think you're totally right. I I think I mean we we've had um recently the king's speech um then given by Kira Starmer. Who knows who the prime minister will be when we release this episode, but there was there was a line in the the king's speech about what was it? It was something like regulation for growth.

[00:10:42]>> Oh no.

[00:10:42]>> Uh which like doesn't make sense and and that's in in the minds of our politicians and is maybe where Britain is going wrong. And we're going to return to that um later on. But just quickly a couple a couple more things about about the US.

[00:10:57]>> Um with inflation being being twice the target as you say >> your incoming Fed chair um Kevin Worsh is obviously independent. Your your central bank is independent but you know there's this clear wink wink. The pres well it's not even wink wink. The president has made clear he wants rates to be cut. But that can't happen while the Iran war is going on while we don't know what's happening in the street of Hormuz can it? because inflation is such a risk.

[00:11:24]>> It shouldn't is probably what I would argue. Can it is a different question.

[00:11:27]It depends on how many voting members decide that interest rates should should go up or down. Um Kevin Worsh is an interesting character. I am very cautiously optimistic when it all blows up. I will regret saying that. But I am cautiously optimistic for a couple of reasons. I watched his hearing in front of the Senate Banking Committee and he avoided politics like the plague. He said uh clearly to the senators that Donald Trump had never asked him to do anything in particular and that he would never take his instructions from a politician. Um people will make up their own minds as to what's happened behind closed doors. We can't prove any of that. Had he been given instructions, he is still one vote. He's a very important one and his, you know, what he wants to do is going to lead others and and he he still has to be persuasive is my point.

[00:12:19]Um but, you know, he was very clear and robust about the fact that he would not take his instructions from politicians.

[00:12:25]He's a serious guy. Yeah.

[00:12:26]>> He sat on the Federal Reserve Board of Governors during the financial crash in 20089. Um he went to Stanford. say he has he has a really credible CV and uh I think you know what how people tried to angle to get that job was to imply that a lot of mistakes had previously been made by the Federal Reserve. I think that's fairly uncontroversial.

[00:12:52]>> I mean what central bank got CO right?

[00:12:54]>> Yeah.

[00:12:55]>> Um and so you know he he's had to angle on that. Um, but what he actually said in the hearing, I found really measured, uh, quite persuasive. And he wants to get the Fed back to doing what it's supposed to do, which is to target inflation.

[00:13:12]>> And you take him over Andrew Bailey.

[00:13:14]>> Oh my gosh. How is How is Andrew Bailey doing?

[00:13:18]>> Well, >> how's it going?

[00:13:20]is I mean Andrew Bailey as we've written in in the magazine um has has missed his target more than any other um Bank of England governor we've had and you can you can argue about how much of that is is purely um down to him but I find people people criticize his um communication. What's really interesting in the monetary polic policy committee now is you've got every member voting to hold rates apart from the bank's chief economist saying that um you know rates need to be increased and that that seems like a strange situation that we've that we find ourselves in.

[00:13:55]>> Well, it is strange, but we've been there before. Andy Heldane, former chief economist of the Bank of England, was warning, albeit he was on his way out, but he was warning that rates needed to rise right before inflation really took off uh after COVID. So, um gosh, I hope that's not a foreshadowing of of what's to come. It's interesting you bring up communication because Wars is fairly adamant that the communication from the Federal Reserve has harmed, not helped, okay, >> the cause of monetary policy and sort of the trajectory of the country. He wants to roll some of that communication back.

[00:14:26]Now, as journalists, we have to immediately be skeptical of that. We want transparency. We want more information. But I think the point that he's trying to make is that the bank became too chatty.

[00:14:37]>> Yeah, >> that didn't help with market confidence.

[00:14:40]It confused matters greatly. And that really the bank should say something when it has something to say. And that a lot of the forecasts and projections are just not helpful. I mean, you and I know very well that when we're looking at these projections, it is kind of like looking into a crystal ball. and then people take them to be, you know, fact and and all the rest of it. So, I think that's an interesting point. What I find more persuasive from him, uh, is that if they're going to roll back communications, they should be rolling back all the stuff the Fed doesn't need to be too concerned about. Um, and the fact that the Federal Reserve was pivoting towards like the climate change movement and DEI, whatever you think of those things, >> the Fed has one big job, one really big job. has it some other jobs too, but one really big job and that's to keep inflation to target. And when that gets out of hand, you get the biggest stealth tax on American or British workers that you could possibly implement. So stick to it. And I think he's been very clear and consistent on that line.

[00:15:36]>> Again, if and when it all blows up, Michael, my my very cautious optimism goes out the window. But uh I mean, he is checked by other voting members, right? It isn't as if he unilaterally decides what the interest rates going to be. Another American I want to talk about is Zoran Mandani, the mayor of New York.

[00:15:54]>> What do you guys make of him over here?

[00:15:55]>> Well, this is the thing. I think he's um kind of seen as Zach Palansky without the controversies. I mean, he's not had issues with his council tax and presumably he was he's not um tried to hypnotize any women to have larger larger breasts. And um I I I don't follow um the American news anywhere as much as I should have, but I was really struck by I was on TikTok last night and one of his videos came up and he he was announcing that he'd got rid of the there think there was a 12 billion budget deficit in New York and he's he's balanced the books and and when he was elected, you know, in talking about rent controls and and taxes on millionaires, my assumption was there's going to be economic chaos, but it sounds from this video at least that actually he's brought in fiscal stability. So, what what's really happening in New York?

[00:16:48]>> He's been paying a lot of lip service towards getting a balanced budget. He has to >> uh and he's been talking about making cuts and finding efficiency gains. Um he appointed officers not that long ago uh who were not additional paid staff members who were already working uh for the city of New York who were supposed to report back what could be cut. I think we must put any claim of cuts and deficiency in the broader context that this is somebody who is trying to ramp up free nothing's free uh child care.

[00:17:18]This is somebody who's trying very seriously to to increase taxes in in the city of of New York. He's trying to create these new public grocery stores.

[00:17:27]I mean, >> there's a lot of attempts to collect more revenue and then there also attempts to take it and set it on fire >> and not really actually help the most vulnerable of New York. So I think we should be very wary of the lip service that he's paying to addressing budget deficits. This is not somebody who I think has uh emphasized the need for fiscal prudence before and we shouldn't think he's doing so now.

[00:17:51]>> He's a fantastic communicator.

[00:17:54]>> Sure.

[00:17:54]>> He is a great politician. Comparing him to Zach Palansky feels I understand where it's coming from, but like these are two different levels.

[00:18:02]>> Two totally different people.

[00:18:04]>> Mom Donnie is really impressive. uh when it comes to the way that he operates the political field. He recently had Barack Obama out with him. Like he is also attracting establishment type candidates to what I think is a far more radical worldview than the one that Obama certainly had in in office anyway. So I I I wouldn't compare them. I think Zor Maldani may be a lot more effective when it comes to messaging in the country more widely.

[00:18:32]>> Yeah. Now, people will push back on me there and say, you know, people in the normal parts of America don't like socialism and they don't buy what this guy's saying. And I I agree with that.

[00:18:44]But one of my concerns is that as mayor of New York, he's got a lot of powers in some areas, but he doesn't have a lot of powers in others. He's got to get the governor and the state legislature on his side to do a lot of things, especially in fiscal policy. So, if he actually can't do all that much, but he brands whatever he does do as socialism, I'm a little bit worried that the takeaway will be, "Well, I guess it wasn't that bad."

[00:19:09]>> Yeah.

[00:19:09]>> You know, New York survived. And the thing is, New York can survive almost anything. It's New York City.

[00:19:13]>> Sure.

[00:19:14]>> I mean, it's just truly one of the best places in the world. It attracts the top talent. People want to stay there.

[00:19:20]Nobody's living in New York right now because of the tax code. Right.

[00:19:23]>> Right. like like you've already accepted that you're pay paying a price to live in New York. So if you're there, you really want to be there. New York can survive a lot. And I think that there's a a very real chance that mom Donnie uh is effective enough, but not so effective that it actually tips the city. Compare him to someone like Mayor Katie Wilson in Seattle who's being compared to Mom Donnie. Uh she uh too is, you know, signed up to the socialist cause. I don't think she has his full skill set when it comes to communicating her ideas. Uh she recently was on video uh in a panel's discussion waving goodbye to the wealth that might uh flee Seattle and flee the state of Washington. Not too long later, Starbucks, which is headquartered, um there announced that they were going to invest $und00 million in their offices in Nashville.

[00:20:17]>> Yeah.

[00:20:18]>> Tennessee.

[00:20:19]>> There are real effects to these kinds of comments. There are real effects to these um boycotss that people including the mayor try to force against the businesses that you know are are some of the biggest success stories out of these cities and states. There are consequences and because she doesn't quite have mom Donnie's political skill set, I think we might notice some of the changes faster in Seattle.

[00:20:40]>> Okay. Fascinating talking about America, but I'm going to drag you back to to Britain um as we >> Happy to be here. Woo. As we um finish up, when politicians were making their moves against Kier Starmer, we had a guilt market, a bond market freakout, not too dissimilar to what you reported on under the the Liz Truss.

[00:21:00]>> I saw your graph.

[00:21:01]>> Yeah. The Liz Truss mini budget. And speaking to Labour MPs on the soft left, they're they genuinely don't see this as a problem. And I think there's a growing number of voters, especially um around younger voters who because they've kind of become used to economic stagnation, they sort of think it can't really get any worse. Why should I believe these right-wing economic uh commentators, right-wing journalists who try to explain that actually there is a limit to what you can borrow, the debt is a problem. Let's just do it and let's invest and and have nicer lives. And someone put it to me that the only way the conversation in economics is going to change is if actually in Britain we elect a left-wing government, a properly leftwing government that tries to do socialist policies and then if that goes wrong, we then get into an era where there's room for the next fer for example.

[00:21:54]>> Didn't you already do that with several iterations of the Tory party? Weren't they fairly energy price controls from memory? Uh jokes. Um >> but no, that's that that is a wider point, right? I mean our a friend friend of both of ours Chris Snowden who's a lifestyle economist wrote this piece in the in the critic recently saying that Britain is already there. He described it as a capitalist command economy where we're allowed private businesses. I mean but they're you know prices are controlled by the state but why do you think people don't see that this doesn't work?

[00:22:26]>> I've got some sympathy uh for people who are thinking to themselves you know what forget it let's just try something more extreme. Maybe the Greens one way, maybe reform the other, because most people are doing everything right. Yeah.

[00:22:40]>> Um they're paying into the system. They have been lied to, let's just call it what it is, by politicians in every political party to pretend that their contributions into their state pension are in a nice little pot somewhere with their name on it. They don't tell them it's a pay as you go system. You know, these are people who many cases, sadly so, have actively avoided the health care system as to not be a burden. and then when they need it, they really don't understand why they can't just get an appointment. Surely this should be simple and it should be simple and it does work in other countries. So, I understand people being really frustrated. The comments from the Labor MP saying, you know, investors in the markets, they'll just have to get in line. It's a really silly comment. Uh, and I'm frustrated because I think politicians should know better. I don't think you have to have like >> But that's what's scary, right? They're not like maliciously saying that. They sincerely don't understand and believe that, you know, you can vote the bond market to behave a certain way.

[00:23:36]>> Well, it's particularly unforgivable when you had what we had not so long ago when Liz Truss's very shortlived government tried to uh bring in a hundred billion pounds worth of energy price controls. We saw what happened. We saw what happens when you ask the state to borrow too much. But look, the Tories made huge mistakes around this. They pretended during co that there wasn't going to be a price to pay for all of that borrowing. you know, the fact that the Labor Party is do trying to do it now. Um, and you know, Rachel Reeves, the chancellor is walking a very tight line on it and she's more responsible than others. The bar is low, but like she is much more responsible than others in her language around this. None of this is surprising. I don't wish though for this to come to fruition and for people to realize the consequences. It would be so painful. I know sometimes people say, "Oh, well, you got to have a dose of it." We have had doses of it. I was here for some of those doses. It was really painful. If you had a mortgage, for example, and you were trying to reortgage, it was really painful what happened to interest rates after that mini budget. Um, what inflation did to everybody was a very real experience. I don't wish it to get worse. I know some people say it has to, but I I really don't wish it. I I do wish that politicians would think stuff like that through. You don't have to have a PhD in economics. You don't. I don't. That's like you don't need anything like that.

[00:24:52]You just need to understand like some very simple basics >> which have been proven. Can we end by me asking you a question?

[00:24:59]>> Please do. I'm nervous.

[00:25:02]>> The US is frequently looking at Europe.

[00:25:04]>> Yeah.

[00:25:05]>> Asking questions maybe sometimes a confused face but like also with a lot of love.

[00:25:10]>> Yeah.

[00:25:10]>> What is the under reportported story in the UK that is not covered in America or that Americans can learn from? I think for me the thing that terrifies me about Britain and we've talked about this on reality check quite a lot. don't know if it's if it's got a an international reception because I don't know if you guys have a similar problem but for us for me anyway it's this needs crisis the nearly 1 million under 24 year olds 16 to 24 year olds who they're not in school they're not doing training or apprenticeships they're not working and that's that's coming up to um numbers that it's not been for years and years and years and the government is aware of this Alan Milbour is doing a kind of report into it and there's there's various solutions you know They say they're going to undo some of the tax changes that made it disincentivize employers for hiring young people.

[00:25:59]There's going to be, you know, money paid to encourage companies to hire young people. But my worry is that we've never really seen any of this stuff work. And my fear is that young people who leave school who don't immediately go into college or go into university or when they finish those they don't go into work once they're in that state for more than a few months is going to become a permanent state and this million people you know we're not going to solve them. They're they're going to go from being neats to in their late 20s they're going to become permanently unemployed and then we're creating a new generation that's known nothing but dependency. And I I think Britain now we're all aware of this problem. It's not that we don't cover it here. We talk about it but we talk about it as to do with the fiscal problems it creates now.

[00:26:50]You know how much the tax burden has to be to to pay to support these people.

[00:26:54]But we're not thinking about what it's going to do to us as a country, you know, 5, 10, 50 years down the line. I think that's a massively unreported aspect of that story that I assume has not made it across the pond.

[00:27:06]>> Fascinating.

[00:27:07]>> We've run out of time. Uh Kate, you must come back to London and the spectator more often, but thank you so much for joining Reality Check.

[00:27:14]>> Thanks for having me.