When it came, Donald Trump’s reelection to the White House as anarchist in chief wasn’t unexpected.
But the scale of his victory – and just how quickly the result was declared – was a surprise.
No wonder markets scrambled to recalibrate in the hours that followed.
The morning in London after the night before saw nearly all risk assets open higher. (Gold was one notable exception).
But as the day wore on, American stocks overwhelmingly prevailed.
US equities ended Wednesday broadly 2% up – and nearly 6% higher for the US small cap index.
But UK and European shares floundered. Indeed the German market closed down for the day.
Tariff-ick
To some extent the market was clearly trying to price in the now-certainty of President Trump – and hence the imminent possibility of some incarnation of his much-touted protectionism and trade tariffs.
For instance, here’s how high-end spirit makers traded over the past few days:
Source: Google Finance
You can see shares in all these companies fell 3-7% the day after the election. If Trump applies tariffs of 20-40% to French cognac, say, then Remy will sell less of it in the crucial US market. So that’s rational.
But note I’ve also included Brown-Forman – the US maker of Jack Daniel’s – alongside the European brands. And it fell too – more than 7% – the day after the election.
That’s equally rational. If the US imposes tariffs then so will its trading partners.
David Ricardo explained 200 years ago why countries do best following free trade principles.
But we live in an era where many people prefer tweets to textbooks, and protectionism and nationalism are back in fashion.
Musky smell
Imposing high tariffs will hurt global trade and make the US a little poorer than it would otherwise have been (although I’d concede the rest of the world will probably come off worse).
One reason the US will suffer is because the dollar will likely strengthen in a more fractious world. This will make US exports less competitive on the global stage, even excluding the tariff tit-for-tat.
Again, any student of economics knows this.
But Trump’s tariffs aren’t really designed to increase wealth. They are for winning votes, and for supporting his favoured industries and companies.
Here’s a striking example of the latter, pitching Tesla against the iShares Global Clean Energy ETF:
Source: Google Finance
Trump says he will roll back environmental initiatives and cut government programmes aimed at driving renewable energy take-up. This should benefit fossil fuel companies. Especially coal miners.
True, it didn’t work out that way last time, for various reasons.
But that’s the ‘Trump Trade’ view.
And here we can see iShares’ global clean energy ETF did modestly puke on Trump’s victory on Tuesday.
Yet at the same time shares of Tesla – a dominant manufacturer of electric vehicles and solar energy products – saw its largest one-day share price gain since the pandemic.
Of course Tesla’s CEO and major shareholder, Elon Musk, pretty much ran Trump’s re-election ‘ground game’ and turned his social media platform X (formerly Twitter) into an electioneering machine. Musk himself many times repeated false election fraud claims.
Given the relative performance of the iShares Clean Energy ETF and Musk’s clean energy and transport company following the result, it seems probable the market is putting more weight on Musk’s political proximity to Donald Trump than on the fundamentals for Tesla versus other similar stocks.
Now, we could debate all day how America ‘won’ the 20th Century.
However I’d contend that a largely meritocratic and competitive capitalist system wedded to a genuine shareholder democracy played an outsized role in pulling it and its citizens ahead.
By contrast, a return to crony capitalism and the robber baron era won’t be in the interests of most Americans.
Trump 2.0: sequel fatigue
All that said, as I write – two days on from election – there are signs the initial post-Trump moves in the markets are waning.
Those drink makers rose today. Gains in Germany are about twice those logged in New York so far.
This suggests the knee-jerk post-election market move was as much a symptom of some traders being out of position and/or hedges being unwound – plus a bit of emotional tumult – than a completely sober repricing of risk and reward.
After all, the only thing we know for sure about a Trump presidency is that it will be unpredictable.
Tariffs, for example, could be implemented at a high level. Or they could just be a negotiating tactic.
The same will be true across the barrage of uncertainty we can look forward to. Whether it be the future of international relations and bodies such as NATO and the UN, to an immigrant wondering if they’ll be deported.
The possible, probable, and unthinkable will only coalesce in the months and years ahead.
Zero sum games
If we are to take Trump and his followers at their word, the election result is a mandate to pursue an America First policy of bilateral agreements, tariffs, and regulatory rollback aimed, they would say, at making America Great Again.
That America is already the richest country in the world and by far its strongest-performing economy – with leadership in most of the key industries including AI, and with the strongest military and nuclear stockpiles – appears not to matter to the electorate.
Maybe after the huge inflation shock of the past couple of years and the hollowing out of American hard industry over the past 30, that’s fair enough, in so far as it goes.
America is an unequal society, and while the average American is much richer and earns a lot more than the average Brit, that hardly matters to Joe Sixpack enviously eying millionaires on Instagram while he struggles to afford a home.
However Trump can’t reverse the technological progress behind so much societal change.
And even in as much as his tariffs might superficially favour certain US groups, they’ll ultimately do more harm than good. Just like last time.
As per the Brookings Institute’s assessment of Trump 1.0:
- American firms and consumers paid the vast majority of the cost of Trump’s tariffs.
- While tariffs benefited some workers in import-competing industries, they hurt workers in sectors that rely on imported inputs and those in exporting industries facing retaliation from trade partners.
- Trump’s tariffs did not help the U.S. negotiate better trade agreements or significantly improve national security.
None of this would have surprised Ricardo.
But what might have raised his eyebrows is that the country with the most globally dominant firms – the biggest winner of the global order that its grandparents and great-grandparent’s forged with their sweat and blood – would now vote against its own economic interest.
A world of pain
If the US does go down the protectionist path, then the forces of Hubris and Irony will one day have their revenge.
Little comfort for those of us caught up in the consequences, admittedly.
Indeed where Trump is correct is that the UK, Europe, and the rest of the free world has benefited enormously from US economic and military leadership over the past 80 years.
If the US retreats, we’ll feel it economically and in our politics and national security. Needless to say Britain looks particularly exposed following our own quixotic decisions of the past few years.
The US can probably coast for a couple of decades however on the momentum of its enormously successful economy.
And if this political movement endures then its leaders can find other scapegoats by the time the costs are clear.
Identity theft
Of course this election wasn’t just about economics. In part Trump’s popularity must be a backlash against the extremes of the progressive agenda over the past couple of decades.
On that note, it might surprise my usual half-a-dozen critics to hear I was noting to friends last week how the Democrats’ website flagged it was fighting for 16 groups – from African Americans to Latinos to Women – but it apparently didn’t see the white male majority among its constituents:
At a time when more American women go to college then men – including for professions such as law and medicine – while the relative earnings of men without a college degree have declined for decades, you can see this could stick in the craw, regardless of your views about the bigger societal picture.
In fact early post-vote analysis suggests many minorities voted for their candidate of choice, rather than the one supposedly prescribed to some identikit community. Lots of Latinos voted for Trump, for example.
I’m all for it. Personally I’m no fan of the extremes of identity politics. We’re all equal individuals as I see it, and while structural inequalities do still exist, an enlightened government can seek to improve things without pitting groups as victims and oppressors, and putting people into boxes along the way.
Some Monevator readers think I lean very left. However as I’ve noted many times before, my own friends think I’m the semi-acceptable face of the right.
In reality I’m that unfashionable 1990s’ middleman – economically a capitalist, but socially a liberal.
That’s because when it comes to both trade and society, I believe the same thing…
…we’re all in it together.
Born in the USA
To conclude, the political shift in the US hardly has me jumping for joy. But there’s not much I can do about it.
For at least the next four years, political risk is back on the table. Especially if you’re an investor in individual companies with any exposure to foreign markets or foreign competition.
We’ll all feel the knock-on effects. From our mortgage rates – Trump’s plans seem inflationary, which will keep US rates higher than otherwise, with consequences for our own interest rate in the UK – to our taxes. For instance we’ll probably have to spend more on defence.
I’ll leave issues such as sleeping at night with an aggressive Russia on the borders of Europe as an exercise for the reader.
Finally, comments welcome, but please focus on the economy and markets.
I know I mentioned identity politics above, but that was because leaving it unsaid would clearly only present half the story.
There’s a vast Internet out there for those who want to go down that rabbit hole.
Botty mouths
On that note, since the election, Monevator comments have been inundated with spam-like postings such as this (identity redacted):
The spam filter identifies them as such. The posters have no prior history of posting on Monevator. They are not on our mailing list. I presume Russian or Chinese bot farms are the source.
But honestly it’s sometimes hard to tell the difference between bot-spam and the bold and radical views of our one or two Blimpian readers. So I’ll delete anything not about global trade, markets, or investing with extreme prejudice for the sake of an on-topic discussion. Save your fingers!
Finally I wish America – a country I’m very fond of – and all her citizens the best of luck.
Starmer is in an interesting place
Outside the EEC
Antagonised the world’s foremost economy with multiple undiplomatic statements by him and his ministers
What could possibly go wrong?
xxd09
Should Starmer sack a few as a show of good faith – probably.
All our politicians should be a little more thoughtful of their comments and how they’ll land in the future, under various future environments.
I sat on the fence regarding taking profits pre budget. I wrongly thought any capital gains tax hike would give us time to sell before coming into force. I also bought Microstrategy and Tesla thinking if trump won it would in someway mitigate my disappointment. My portfolio has jumped with Trump but don’t feel very consoled. I sighed with relief 4 years ago…Time to take another deep breath.
The majority view just beforehand was that the election was very close, with real possibility for disputes about the results (given Trump etc…) . I guess there was a fair amount of relief about a decisive outcome in the stock market response, regardless which side.
Who knows what he’ll actually do in office, like last time round it might not have much relation to the rhetoric. Many tarifs from Trump version 1 remained in place through the Biden period (I know, because I had cause to look some up) – there might be more continuity of policy than one might expect.
Meanwhile, in UK , the share price of an FTSE 250 company drops 60% in one day after announcing an Auditor’s review into revenue recognition, governance etc. . Shades of Carrillion all over again. Of course, we shouldn’t be gambling in single shares… but accounting standards apply to every company in the market, so passive investors should be concerned too.
I think what @xxdo9 is saying is that come January there will be a vacancy for “leader of the free world” and in the past the UK Prime Minister would have been the individual people looked to. But with influence in the EU having disappeared, and influence with other English speaking nations less than it used to be, Starmer is going to have to follow rather than lead.
Biden sent the wrong message to the world with his shambolic retreat from Afghanistan. I think Russia and China had his measure. Trump with his bellicose temperament might delay the invasion of Taiwan. The Chinese economy is in trouble and what is a well tried gambit to get the populace onside ? A foreign adventure. So all in all not much but a weak and fractious Europe is no deterrent to anyone. He might do something about the Red Sea too.
So tarrifs wouldn’t be top of my concerns just now.
Markets: it seems to me that US citizens routinely overestimate the importance of their President’s economic views and policies because (a) they ignore time lags and therefore underestimate the importance of previous administrations, and (b) they somehow forget the separation of powers and therefore the importance of the Congress, the Fed, and perhaps even SCOTUS.
Of course a sufficiently fascist president could ride roughshod over those three but no one has since FDR, have they?
@dearieme — Yes, the separation of powers has held so far, but worth remembering that the US president has absolute go / no-go power as I understand it over nuclear war (the nuclear ‘football’ etc). In that sense the decision could scarcely be more important. I again will leave it as an exercise to the reader to judge 47’s fitness in this respect. I agree with @Mr Optimistic — I’d be more at peace if he was just in charge of taxes and trash collection.
On the other hand, consider the decline of traditional religion. By the Law of Conservation of Fear and Fretting people then need a new pagan Hellfire to be scared of, and have largely settled on global boiling. So what if a POTUS comes along who says the hell with all this baloney: no more wind turbines, lots more coal, oil, gas, and nukes; a refurbished national electricity grid and lots of new pipelines, and let the newts take their chances like the rest of us? Could that change markets quickly?
Or if RFK Jr really were turned loose on the pharma industry and the routine corruption of its research: could that change markets? Or could a “peace president” do something useful about the hopeless inefficiency and incompetence of the “defense” industries and the wastefulness of the Pentagon? Could large chunks of the federal government be closed on grounds of being unconstitutional or extraordinarily burdensome?
Could anything useful be done in the face both of the huge acknowledged government deficits and the rarely acknowledged future costs of medicare and medicaid? Even if anything could, would Trump be the man to do it?
Pipe dreams, I expect. “They” would sabotage him or even shoot him rather than let such things happen. I hope God protects Trump because, by golly, I doubt if the Secret Service will. But there is no God. Good luck DJT.
Now there’s something to contemplate: Trump shot again but a couple of centimetres further over. I bet the markets would respond to that.
Joe Sixpack has a Ford F-150 in the driveway and a mortgage locked at 2.5% for 30 years on a home worth 50% more than it did 5 years ago. He’s actually fine.
Thing about US governance – speaking as a reluctant resident – is that since the Legislative branch is non-functional (filibuster) and the President can only direct agencies and issue unfunded orders, policy is largely irrelevant; the only thing left to fight over is identity politics. So here we are.
Never mind the US, look at the utter shambles going on in Germany. If we’re not going to make much economic headway with the US, what about the rest of the world? Brexit was supposed to bring us more economic autonomy, but the utter disdain and hatred our political class has for even the concept of going our own way means we’re left drowning in self-hatred and doubt. I despair.
dearieme -you could be a little more reassured in that Trump has a full functional depute in place -(in case of a successful third attempt on his life !)
ie JD Vance with his Indian wife is young and the real deal
His autobiography-“Hillbilly Elegy” is a most interesting read and provides some useful explanations of the current political situation
xxd09
I think the dip in the German markets is probably much more of a consequence of the sitting Government collapsing after the coalition Finance Minister was sacked, than as a reaction to Trump’s victory to the trade barriers. Germany has a lot more pressing issues than the next tenant of the White House in 2 months time.
Yet another failure for the “US equities are overvalued / represent too much of the index / the valuation gap is too wide / one must diversify” investment theses. As always perfectly rational, as always ultimately proved wrong
@JAQC — Excellent point.
@Aol — I know, it’s getting truly ridiculous but what can you do. Maybe it really is different this time! (Said with full knowledge and semi-irony). Temple Bar did a presentation last week showing US equities are priced for annualised 12-year returns of MINUS 6%, and that was before this recent bump.
I’m hugely underweight the US and it’s cost me of course this year.
@Learner — Interesting. I would say though that whatever the technical reach, the de facto influence seems a lot bigger, though granted it depends what you’re looking at being influenced… best of luck for the next four years!
Democracy – a system of government in which state power is vested in the people. Democracy has voted and the Donald is in the white house- isn’t this how democracy is supposed to work. It seems some people only accept democracy if it elects the person they want and lose their rag if it doesn’t. As it was a two horse race perhaps Sir Kier could have played it smarter. As for Lammy and a few more of his colleagues school boy error. The Donald does have bizarre ideas but occasionally he does speak the truth eg Germany reliance on Russia for energy, German economy suffering now and NATO re defence spending. How many other dared to call these out. I am in no way justifying Trump but he does deserve some credit. I had a discussion with friends of ours who are french. They don’t like Trump, he’s just a crook – however when I said the same about Sarkozy they were quiet. Each to their own.
@Bally001x — I can reach some agreement with the second half of your comment perhaps, but this idea that people should somehow warm to a candidate they really don’t like just because s/he was elected seems unsupportable to me.
I thought Boris Johnson was an awful candidate for PM before the UK public elected him, and I thought so after he was elected and he proved to be just that. And throughout I was dismayed he was voted in.
Where I’d agree is if people don’t accept the result of free and fair elections. But the only person who has done this repeatedly in recent years is Donald Trump! With horrible results in January 2020.
I agree there’s some shibboleths that needed testing, though I do wonder if more subtle players might have been pressing some of these buttons behind the scenes. On balance though I think vastly more harm than good in attacking institutional norms at pace.
In my view the only advances that separate us from the 17th Century let alone 2000BC is technology alongside the institutional encoding of norms most (I accept not all) would agree with such as liberty and equality and the right to property and a fair trial, and so on.
Things are not set in stone, progress and the occasional rebalancing is to be expected and welcomed.
But (threatening to start) smashing all that up as the leader of the world’s richest (/deadliest) nation doesn’t make you an iconoclast, it makes you dangerous in my view.
(Edit on reflection: Well okay I guess it does make you by definition an iconoclast. A dangerous one!)
Its an interesting time, that’s for sure. Trump is clearly a very odd and divisive character, and I cant get on board with his intolerance of what he considers ‘non-American’. However, having someone business minded running an economy like the US is not perhaps the worst idea. The markets did ok last time, and us investors are reaping the benefits. I just wish it wasn’t him!
On a related note, if you have time to listen to a podcast about the US presidency, this is worth 45 mins of your time.
https://freakonomics.com/podcast/has-the-u-s-presidency-become-a-dictatorship-update/
@TI:
Re: “I thought Boris Johnson was an awful candidate for PM before …”
Just remember who he was up against. Bozo the clown was possibly the least bad of the two pretty dreadful options?
Something not entirely dissimilar might – in part at least – explain why DJT got elected again?
@Al Cam — It’s true it was an unedifying choice. But we’re getting well off my own plea to keep things to markets and investing I’ve just realised (it’s so easy to do, I know) so I’ll leave this here.
Accounts of Trump 1.0 suggest that his team spent most of their time gaming him – largely to put a handbrake on whatever insane idea caught his attention at the time.
I’d guess that what happens next depends far more on the ambitions and agenda of his team than the big man himself.
I don’t believe he has the focus to rollback American democracy and can be deflected from wrecking the existing world order, if his advisors aren’t true believers.
I also think he’s personally sensitive to signals of economic health such as the stock market. If policy moves start tanking the S&P then I suspect the Administration will start backpedalling.
Hope so, anyway.
It is reported that inflation was one of the main issues for voters, yet when it came to the vote they didn’t favour the current government, who have taken significant steps to address it, and went for the candidate with policies seemingly designed to make inflation worse.
On DJT: Hope clouds observation. @AoI #14 & TI #15 re. US large cap valuations (TTM & CAPE): returns come from future earnings, not past ones. In any event, S&P 500 PE at 26 but top 10 at nearly 50x, inflating average. R2K median (not aggregate) PE just before Tuesday only 10.7x. Would still be just 12x considering only profitable companies. IMO melt up now > likely than melt down. High convexity plays: PLTR, TSLA, MSTR.
Thought provoking post.
I’m still digesting what it means – obviously you can like it or loathe it, but the reality is we get to live with it.
The big thing for the US is that technology is in their hands – who’s on Friends Reunited?
But the curse of technology is that more and more work and money goes to the hands of fewer and fewer people.
Not talking about Musk, but IT workers.
The coming poverty to middle class America is something that was foreseen decades ago – but I reckon that over the next 4 years the rug will be pulled from beneath the US populace.
But hey, my VWRL is up to record highs!!! I’ve nothing to worry about.
@Larsen #22
The same thing happened here.
@xxd09 I wouldnt worry too much what ministers in the UK government said about Trump. JD Vance is on the record calling Trump a nazi and he is getting the job of Vice President.
@Tom
>> However, having someone business minded running an economy like the US is not perhaps the worst idea. The markets did ok last time …
An understated element of Trump’s promise is to appoint a renowned private-sector cost/jobs-cutter like Elon Musk to take an axe to vast swathes of bloated and wasteful government (I’m not saying he’ll do it or that it will be a success, but that’s the promise).
Can you imagine any party in the UK, even the Tories, offering this here as an alternative to the recent tax rises? I can’t, and that’s why I remain very underweight in UK stocks, outside the 100 at any rate.
Musk as president next time around?
…or Musk and Trump to have a big public bust-up within months?
@Sponje
>> Musk as president next time around?
If you’re being serious, barring a major constitutional change he isn’t eligible, as he was born outside the United States.
If you’re indulging in whimsy, how could we trust the judgement of a man who married AND divorced a girl from one of the St Trinnian’s films not once but twice?
I said to my daughter (who is really shocked and upset about Trump winning) It won’t be as bad as people are saying. There will probably be some good things and some bad things …but that is democracy. If people are not happy they will vote in the other guy next time.
As the Guardian puts it today Trump is the world’s greatest showman and weakest strongman. But as it also reminds us elsewhere, fascism relies on passivity “when a person is alone in a room that begins to fill with smoke, three-quarters raise the alarm within minutes. Yet, when surrounded by others who remain passive, only 10% take action. This is the “bystander effect”, identified by Latané and Darley in the 1970s, “
As America switches to Russia’s side it’s time to confront the fact that the forces of the “orange emperor” are already here and amongst us:
https://www.theguardian.com/commentisfree/2025/feb/27/britain-defend-itself-us-military
There’s a potential nexus now between the left and centre right. Broad spectrum disgust at the US being lead by blatant gangsters:
https://open.substack.com/pub/noahpinion/p/america-is-ruled-by-gangsters-now
can be harnessed here to stop Britain continuing it’s desultory role as America’s Air Strip One.
The war ended in 1945, but the American presence continues unabated.
The Brexiters go on about national sovereignty, but for generations we’ve relied on alignment with a former colony of Britain whose interests and impulses are anything but aligned with us.
Churchill was right to seek an independent nuclear deterrent in 1952.
If, as the Brexit tendency claims to be, we’re going to be serious about sovereignty, then we should cut the self-abasing dependency link with Washington.
We have Aldermaston. We don’t need Los Alamos.
We should define what the feasible, affordable defence interests of the UK are – be it securing the home islands, or supporting European partners – and then just do that independent of and separately to any American preferences.
If Trump’s pulling out of Europe, as he has stated he will do, then we should prepare accordingly for US withdrawal of forces from the UK (if not front run the decision).
We may not be masters of our destiny any more in a multipolar world where Britain lost its empire but failed to find it’s role.
However, we can stop being a pathetic supplicant of the White House.
This is what “Taking Back Control” should mean.
Starmers big moment has arrived
Can he and the Foreign Office rise to the occasion and act as a functional bridge once again between Europe and the US?
This is our current position and Britain’s historical role for many years now
We have been here before on a number of occasions so there are precedents and guidelines available
Hopefully he can succeed for all our sakes
xxd09
As just pointed out in the Rest is Politics podcast, we’re now at a Gaullist moment.
The French were abandoned (rightfully, but that’s another argument) by Eisenhower in Indochina in 1954, Algeria from 1954 and Suez in 1956.
They realised that they had to be able to stand separately to the US, hence France remaining in cooperation with NATO but withdrawing from all US military command structures in 1966 and the development from 1961 of the Force de dissuasion.
We can take this difficult present set of circumstances as our own opportunity to do likewise; avoiding the need for a general rearmament and a really big hike in defence spending (which we simply cannot afford) when doing so, whilst still developing full strategic autonomy.
This isn’t some mad lefty position. Here’s the DT – voice piece of the Tories – grasping towards some similar conclusions:
https://www.telegraph.co.uk/world-news/2025/03/01/eu-needs-1000-more-nuclear-missiles-to-deter-putin/
When you go for conventional you get expensive. We have to do this one on the cheap. A fifth sub on Trident replacement (the unit cost falls the more you build), uploading to maximum warhead loadings for SLBM throw weight (8-10 MIRVs each, as against present arm’s limitation limited loadings of no more than 4) and rolling out some cost effective TNWs. With conventional we can’t afford the welfare state and a warfare state. With the above we can square that circle.
@DH – I’m going to counter, for the sake of an interesting debate! We spent far more on conventional arms during the Cold War while maintaining a large welfare state. Clearly the peace dividend is suspended and non-military spending will take a hit. Or more pennies on income tax 🙂
But why more nukes? As I understand it we can already incinerate every major Russian city and that’s without the French.
But our adversary is a grand master at hybrid warfare below the nuclear threshold.
We’re not going to nuke them for cutting undersea cables, knocking our utilities offline, setting fire to a warehouse in Dagenham, or invading the Baltics.
We need the capability to deter Russia at the sub-nuclear threshold because who wants Armageddon every time these bastards try to intimidate us?
Apart from that I think you’re right, this is a Gaullist moment! I listened to the same podcast and the part that hit a chord with me was that this points towards a new role in Europe that was scarcely imaginable a few years ago.
Trident II SSBNs with the D5 SLBM Life Time Extension (LE) are currently limited to 12 of 16 launch tubes actually loaded, and no more than 4 of a possible 8 RVs per SLBM (I think they’re strictly MaRVs, not MIRVs, these days), each with a Mk4/W-78 100 kt ‘physics package’.
Continuous At Sea Deterrent has only 1 out of the 4 UK SSBNs in the deep ocean at any time (with 1 returning to Faslane, 1 leaving, and 1 undergoing maintenance there).
So that’s a maximum of 48 RVs. In practice some (UGM-133A) Trident II D5 SLBMs are only loaded with 2-3 RVs each, giving 40 available at any one time (on the one SSBN guaranteed to be in the deep ocean) as the assured deterrent.
The Russian Federation has now upgraded all elements of its ballistic missile defense (ABM) system.
For the defense of Moscow, Russia’s A135 ABM system went into operation in 1995, consisting of 68 nuclear-armed interceptors and a set of phased-array radar stations for missile tracking.
That system was deployed when the 1972 ABM Treaty was in force, which limited the deployed system to 100 interceptors.
The treaty ceased to be in force when the US formally withdrew in 2002.
The interceptors in the A135 system were upgraded to the modernized A235 system by 2020, with the numbers increased to 100 interceptors, all of which are now sufficiently accurate to be conventionally armed
(My source: National Academies of Sciences 2021 “Regional Ballistic Missile Defense in the Context of Strategic Stability” Washington).
The US equivalent system (in Alaska and California – to protect against a limited North Korean attack) has 44 interceptors with an intercept reliability in tests of about 50%.
If the Russian A235 can equal that performance then it could, at least in principle, then manage to intercept 50 inbound RVs, which would use up all 40-48 RVs which the UK could guarantee to try to put on Moscow in a retaliatory strike (assuming London had no warning to try to get the other Trident II SSBNs out to sea).
In truth, we don’t have a fully credible deterrent capacity right now. By cutting the warhead totals for political reasons we’ve under deployed the existing Trident II LE system.
We can’t afford to make the same mistake with the Trident replacement programme.
There’s a lot of qualifiers there, and my first question is are other Russian targets as well protected as Moscow?
However, set that aside. Your comment just recasts any contemporary nuclear arms race as a fresh exercise in futility. We buy more nukes to overcome more interceptors. They order more interceptors to shoot down more nukes. We get better nukes, they get better interceptors.
If nukes can be neutralised then deterrence rests upon having sufficient conventional forces to defend your territory. If we agree that nukes are an essential component of defence, then adequate deterrence relies upon a sufficient mix of conventional and nuclear armed forces.
So an ICBM, an SLBM and an ABM all have similar costings as they’re all chemically propelled rockets.
The different payloads (offensive Thermonuclear RVs or conventional interceptor) has never made up more than ~10% of total deployment costs when done at scale.
ICBMs and ABMs both have to be buried in super hardened silos in the hope that they could survive a near miss (less credible these days with Manoeuvrable RVs – MaRVs – and proximity fusing):
Meanwhile SLBMs have to be housed in elaborate near silent nuclear powered SSBNs to avoid their detection (before they launch).
However, modern ICBMs and SLBMs frequently carry multiple (independently targetable) MaRVs (e.g. US/UK Trident II D5 SLBM has 8 RVs each, China’s DF-41 ICBM has 6-10 RVs each, and Russia’s Sarmat RS-28 ICBM has 10 RVs each.
In contrast, an ABM carries but a single interceptor to defend against just a single incoming RV upon a single target.
Offense with ICBMs and SLBMs is, therefore, always at least 8 to 10 times cheaper than defence with ABMs.
The attacker can always much more cheaply overwhelm the defender, even with perfect discrimination of light weight decoys from real RVs by the defender (NB: the RS-28 could carry 14 RVs, but instead is deployed with a payload of 10 RVs and 40 decoys), and this would be even so with 100% interceptor kill probability.
But the interceptor reliability is, at best, no more than 50% per RV for which an ABM intercept is attempted.
Thus, the overall rato favouring the attacker is probably closer to between 15:1 up to 20:1 on a cost effectiveness basis.
And that’s before factoring in that decoy discrimination is far from perfect.
So, no, in principle an adversary can’t just keep countering with more interceptors.
This is why Washington and Moscow signed the ABM treaty in 1972.
NB: China has stayed completely outside strategic arms limitation and control frameworks (although it has abided by the Comprehensive Test Ban Treaty).
With its sophisticated and huge industrial base (on some estimates it has as much manufacturing capacity as the rest of the world) it now has a significant ability to break out from minimum deterrence, and indeed appears to have recently opted to go for at least extended deterrence, if not outright strategic superiority.
China had built out 350+ DF-41 ICBM silos at three remote desert sites in Guazhou (typically referred to as the Yumen site), Hami and Hanggin Banner near Ordos in Inner Mongolia, all since just 2021 (the largest and most rapid ICBM deployment since the 1960s).
China now has at least 400 ICBMs and 550 launchers (some DF-41s are road and rail mobile) and God only knows how many warheads.
China is now also building out an impressive future SSBN fleet with Julong-2 (Big Wave, “J-2”) and J-3 SLBMs on its Type 94 and Type 96 SSBNs. The J-3 is credited with 3-10 MaRVs each.
Just two decades ago China had only 18 to 20 single warhead aging and inaccurate D-4 and D-4A ICBMs (none on operational alert) as it’s strategic deterrent.
We’re in a totally different world now from the 1990s. Nuclear is cheap and terrifying.
And it’s not been an arm’s race this time, unlike the Cold War. because only China has been (relatively recently) racing, with India, Israel. North Korea and Pakistan incrementally adding, whilst Russia modernises, and the US/UK/France prepare to modernise (and perhaps modestly expand) at some future date.
What I do know is that it is hopeless for the UK to try and match Russian manpower.
Instead, we need to ensure that we’ve not under provided for cover on our national survival (continuously at sea) insurance.
A quick Prt 2 if I may but prefaced by an apology that Prt 1 was fact heavy. It’s difficult to make a less commonly heard argument without recourse to some evidence.
So, we can tie down Russia with what US/UK/EU/wider NATO sends now to Ukraine ($260 bn over 3 years, $120 bn from US and $140 bn RoW).
This is all aid and loans to date, both military & civil.
Replacing US aid therefore cost RoW ~$40 bn p.a.
Non US NATO has over $27.5 tn p.a. in combined GDPs.
So, a less than 0.2% rise in defense spending as a share of non-US NATO GDP ensures Russia is tied up, exhausted, depleted and unable to attack anyone else.
Peace is not in our or Ukrainian interests.
That extra 0.2% is covered by Starmer’s wise reduction in UK aid from 0.5% to 0.3% of GDP.
On deterrent, building an extra sub and fully loading existing SLBMs is negligible cost compared to the extra 0.5% of GDP which the UK has just commited to spend by 2034 (3% v 2.5%).
In a £2.84 tn p.a. UK GDP right now that’s already an extra £14.2 bn p.a. each and every single year. In 2034 it will obviously be higher in real terms.
An extra ballistic missile Trident replacement sub in contrast would cost £2bn to £4bn, which is an all in one, one off cost with a 40 year lifespan).
Assuming running costs of perhaps 10% p.a. (actual costs are classified).
This is insignificant. Barely a rounding error in the national statistics – probably less than 0.1% of GDP p.a. over full lifecycle. NB: we spend £350 mn p.a. on bird feeding in the UK!
So, we should JFDI.
Spending massively more on conventional capabilities will not materially add to what we already can do vis a vie Russia to protect UK territory and assets. We can already intercept Russian ships and planes approaching the UK, for example.
Nor will it realistically take away from what we currently can’t do.
Once you start down the path of conventional rearmament it’s never enough.
Security is not measured by % of GDP spent. It is spending effectively which really counts. Force multiplier.
There’s no more effective spending than on the detterent capability.
Thank you for that detailed and thought-provoking response. It is your trademark 🙂
I’m easily persuaded that we need another sub. Less so that the requirement won’t keep spiralling upwards. Witness the Cold War arms race in which the principal adversaries accumulated thousands of nukes they didn’t need in order to achieve “nuclear dominance” etc.
And I buy your proposition that nuclear deterrence is cost effective – to a point.
But you’ve ducked (I think, apologies if I missed it) the question of how useful nuclear deterrence is when your enemy’s provocations are expertly maintained below the nuclear threshold.
Moreover, what’s likely to deter the Russians more? A nuclear guarantee on paper for the Baltic States (scarcely credible) or the Enhanced Forward Presence – demonstrating clear willingness to fight the Russians at the Nato border and accept the risk of escalation?
“What I do know is that it is hopeless for the UK to try and match Russian manpower.”
I don’t think that can be right. Otherwise, they or more likely the Chinese would already rule the world. Manpower is outmatched by technology / economic might attached to hard power.
“Spending massively more on conventional capabilities will not materially add to what we already can do vis a vie Russia to protect UK territory and assets. We can already intercept Russian ships and planes approaching the UK, for example. Nor will it realistically take away from what we currently can’t do. Once you start down the path of conventional rearmament it’s never enough.”
The problem of an arms race is demonstrably not limited to conventional armaments. What brings adversaries to the table is a willingness to match their aggression.
I keep hearing UK armed forces are hollowed out and incapable of independent action without the US. Warfare is being transformed before our eyes in Ukraine.
So it seems unlikely to me that we can’t usefully spend more money expanding our independent capability, improving readiness, reequipping in light of the lessons learned in Ukraine, and increasing manufacturing capacity / arms and ammunition stockpiles.
This seems particularly true in a European-wide context. We need to be able to supply the Ukrainians without the US and we’re more likely to be called upon to reinforce frontline European states than fight on British soil.
Very valid counterpoints.
I used to be a full on CND type but researching the details convinced me that deterrence in the context of multilateral (trust and verify) arm’s limitation is much more rational.
Hope I didn’t sound like Dr Strangelove (modelled by Kubrick on Dr Edward Teller BTW).
China isn’t part of any arm’s limitation treaties.
It is party to the NPT, so whilst it and Russia can legally exchange nuclear weapons materials and know how with each other, neither can do so with say North Korea or Pakistan (at least not legally).
China can, therefore, perfectly legally build any number of strategic delivery systems and, unfortunately, this appears to be what it has gone ahead and suddenly done recently, and all with no announcements.
STRATCOM (ex SAC) was justifiably freaking out about this in 2021-22 but ‘sleepy Joe’ played down the issue because, I assume, the typical Democratic voter/ Congressman isn’t (understably) exactly big on cranking up the nuclear weapons production line and blowing through the US’ own treaty limits (i.e. New START Dec 2012 with Russia, expiring 2026).
I’d be much more worried about Chinese developments in this area than anything Russian, as ‘Putler’s’ endless nuclear sabre rattling (like Khrushchev with his shoe thumping at the UN) belies relative Russian qualitative weakness in conventional forces and organisation.
China, contrastingly, is playing a longer, quieter and much more consequential game.
On the question of below nuclear threshold provocations: we do already spend over £60 bn p.a. on defence. And we do have 4 highly professional service branches.
If we cut our cloth to fit we would not have difficulty dealing with such Russian provocations within the existing funding envelope.
The problem is that we’ve been trying previously at the 2% of GDP level (so less than the 2.3% being spent right now without counting aid to Ukraine) to fight two simultaneous large/ demanding counter insurgencies in Iraq and Afghanistan whilst also trying to maintain both a central/eastern European profile to help NATO’s core mission of conventional deterrence of Russia and additionally to meet each of the UK’s other self assumed miscellaneous commitments (e.g. the Falklands, peacekeeping in Kosovo, and maintaining, operating and working to replace Trident). That was never going to work.
Putler won’t attack the Baltics if he can’t. And he can’t if he’s tied up in Ukraine.
Last year Russia lost around 1,500 troops per day injured, killed, deserting or captured to take an area barely larger than Kent.
At this rate it will take Russia beyond 2100 to achieve its February 2022 war aims by which time it will literally have run out of men of fighting age.
Peace is the worst thing that could happen now in terms of UK interests. If Ukraine will keep fighting on if we supply the arms etc then we should do everything realistically possible to discourage settlement.
It worked to wear down the Soviets in Afghanistan where they lost only 15,000 killed in a decade against Russia’s 172,000 to 220,000 (and rising) so far in Ukraine. It worked for the Soviets with America in Vietnam where the US ‘only’ lost 58,000 killed 1964-73.
Putler got himself into this mess. We should do nothing to help him out of it, and everything we reasonably can in terms of maintaining the level of aid to Ukraine to keep in the hole he’s dug himself into.
Great discussion DH! I can see we’re largely in agreement on the broader points and I learned a lot from you. You did not come across as Strangelovian! I particularly agree that – Kissinger-esque though it is – our interests are likely best served by Putin continuing to grind down the Russian military by throwing them onto Ukrainian guns. I only wish we had given the Ukrainians more support to date.
Strangely if we had given Ukraine much more military aid then it might’ve actually worked against them on the battlefield as they probably would then have used it to go on offensive only to suffer the setbacks which they experienced in the summer of 2023.
Russia having the larger population, territory and economy, and as the aggressor, has always gone on the offensive. And despite those substantial advantages it has still failed even in its more limited attempt to occupy the whole of the Donbas, whilst in doing so inflicting catastrophic levels of losses on its own forces.
Ukraine is running at a 5 to 1 advantage in military fatalities (43,000 Ukrainian v 171,000 to 220,000 Russian KIA) precisely because the relative paucity of its equipment etc has compelled it to run an efficient defensive operation which plays to its strength of fighting on its own territory with a supportive population.
It takes between a 3 to 1 and a 5 to 1 manpower superiority – all else being equal – over a defender’s for an attacker to take territory in open ground, and as high as 6 or even 7 to 1 in a ruined and rubblerised cityscape like Bakhmut (where Wagner Group lost over 20,000 killed on their own figures).
Sometimes limited adversity (here in Ukraine’s equipment situation) can be a hidden blessing, as it discourages military overreach.
As in financial markets, so in military matters, overconfidence often heralds a nasty surprise.