We should be grateful for small mercies. Rachel Reeves, at her second International Monetary Fund (IMF) gathering as Chancellor, did not come empty-handed.

It has been embarrassing that Britain, which has been a beacon of free trade and open markets, cravenly accepted that there was no point in antagonising an irascible White House by resisting Donald Trump’s tariff war on friends and foes.

Ironically, among the biggest victims of Trump’s actions has been Silicon Valley. Much of the innovation may come from the ‘Magnificent Seven’ tech firms but manufacturing skills left a long time ago.

Reeves’ mission here has been to reiterate the UK is still for free, open and fair trade. It is not directly hitting back at America with reciprocal levies as threatened by the EU, Canada, China and others. 

Instead, it has listened to business, particularly the retailers, and seeks to strengthen barriers against dumping of goods at UK ports.

Cheap steel may be welcome, as the UK enhances its defence capabilities and builds – key Labour commitments. Allowing the remains of our steel industry to disappear and switching off blast furnaces before replacements are installed should never have been an option.

Challenges: Chancellor Rachel Reeves is at her second International Monetary Fund gathering in Washington ahead of trade talks

Blocking the free passage into the UK of parcels valued at under £135 may prove an organisational nightmare. 

But the risks of China and other Asian countries diverting shipments previously destined for America to Britain is an obvious response.

The quality and monitoring of trade flows and data for kinks is also an important exercise if dumping is to be corrected. It is a curiosity that the US thinks it has a goods trade surplus with Britain when for years UK data has said otherwise.

Trade and tariffs overhang the whole global economic debate at present, raising the risk of global recession to 40 per cent, according to the latest IMF analysis, and lifting a sword of Damocles over financial stability and undermining budgetary restraint.

The Fund’s Fiscal Monitor report released yesterday is alarming. It projects that the scale of borrowing in 2025 will rise across the globe by 2.3 per cent of total output, twice the expansion last year.

Overall debt levels will balloon to 117 per cent of gross domestic product, which is the highest level since the Second World War.

Reeves may talk a good trade game but her budgetary problems loom large. The latest borrowing figures are a disaster.

Just a month after the Spring Statement, the deficit for the 2024-5 fiscal year came in at £152billion. That is £15billion more than projected.

The IMF warning that fiscal buffers need to be bigger could be directly aimed at the UK. When Reeves put in place her fiscal rules in October 2024, she left herself just £10billion of headroom.

This had vanished by the Spring Statement when it was restored partly by cutting welfare and disabled benefits.

But the peril will unavoidably come back to haunt the Chancellor. UK deficits, IMF data says, will head downward as a percentage of GDP.

Not fast enough to lower the national debt. It is set to rise to 105 per cent of national wealth next year and shows no signs of tapering down.

Reeves’ claims to have fixed the foundations are looking premature. Slower-than-expected growth (partly the result of daft tax decisions) emptied the buffers. 

Trump’s tariffs and a loss of faith in Britain’s fiscal settlement are keeping bond rates elevated and lifting the cost of servicing the national debt.

All of this before the UK has to find fiscal room for its defence spending and mad dash for net zero. The upcoming public spending round in June will be painful, but is unlikely to move the dial.

The tariff and market shocks illustrate the foolishness of failing to listen to monitors, such as the Institute for Fiscal Studies, which cautioned from the outset that UK budget policy was defenceless in the face of global shocks.

Reeves could have a good IMF, especially if she receives a decent hearing from US Treasury Secretary Scott Bessent in a one-on-one meeting.

But the strain of keeping to fiscal rules is the dynamic which could eventually up-end her sojourn at Number 11.

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