Blain’s Morning Porridge July 16^th 2025 – Trump Surprises, but it still feels like a race to the bottom.

“I supped with the devil last night. He really is a most reasonable chap once you get to know him…”

Donald Trump’s BBC interview was… “surprising”. It was Trump, but elegiac? It won’t change the economic reality. The market is living in today – assuming the consequences of Trump policies will be limited. If they hit hard – which economy will suffer most? The USA or the UK?

Interesting chat with a US chum yesterday. We placed bets on which economy will emerge least damaged when the inevitable occurs:

• The UK, which is sinking into a slough of economic despond, despite the best-intentioned efforts of government to tinker around the multiple organ failures of the economy, or
• The US, where the chaotic unravelling of the economy’s basis is happening at disruptive speed and with increasing polarisation.

I reckon the UK… and will explain below…

Meanwhile…

Gary O’Donoghue is the BBC’s man in Washington. On Monday night he was napping when Donald Trump’s press secretary called him (yes, that one), and passed him straight to the President.. “Hi Gary…” It was a genuinely scary 20 min interview. Perhaps for all the right reasons.

Trump came across as normal (for an American, and an American President to boot), measured, thoughtful, even vulnerable at times. He talked openly and answered O’Donoghue’s questions with patience, a measure of grace, and without the malice we’ve seen him wield in public towards journalists asking difficult questions.

Hat-tip to O’Donoghue. The vision of the BBC’s portly Washington chief scrabbling round a hotel room to find a digital recorder is even more illuminating when you remember O’Donoghue has been totally blind since childhood.

O’Donoghue famously reported from the assassination attempt a year ago, and asked The President about it – Trump was genuinely uncomfortable to talk about it, not hiding anything but still figuring it out. His comments on not dwelling on the incident, and “the power of positive non-thinking” were genuinely reflective and considered.

A number of politicians have said Trump can be very reasonable and engaging in private. The interview displayed that in a way few Europeans will have previously seen. It may have all been a set up – part of a charm-offensive before he visits Britain and Europe. But it had an effect.

There were a number of key take-aways.

• He is frustrated with Putin – that should give Ukraine hope.
• He’s happy that he goaded NATO into action – and it sounds like he’s now looking to re-engage on a mutually beneficial basis with the USA as a key part of a re-invigorated Alliance.
• He likes the UK – (his mother is Scots.)
• Donald Trump is Donald Trump. He does it, and says it, different.

While the tone of the interview was quite extraordinary, the effects may be even more so. It may dial down the intense negatively many Brits and European’s feel towards Trump, opinions that have coloured sentiment towards America and how the new global geopolitical landscape is developing.

That said… Trump continues to pose a disruptive threat to global markets and economy. From an economic and market perspective… it ain’t over yet. In coming months, it is likely the consequences of Trump policies will start to bite.

These consequences may be less damaging than we fear – a point Trump supporters have been making in terms of the apparent resilience of the economy. Jobs are not crashing, inflation is only marginally higher. Yet.

Let me do some back of a beer mat, pub-maths. (Yes. Americans take note: it is Mathematics, therefore maths.)

• We know that Tariffs are already netting the US some $27 bln per month.
• If we assume Tariff income rises to $40 bln per month, that’s roughly 2.2% of total consumption – still enough to hit people’s pockets.
• Tariffs would account for about 10% of total US tax revues – a not insignificant gain to the government’s income.

Or, looked at differently, tariffs will be an additional sales tax on US consumers, and sales taxes are regressive, hitting the poorest hardest… MAGA pays.

The next battle is likely to be over who leads the Fed. Indications from Washington are Team Trump will seek to force Jay Powell to resign on “Trumped” up charges relating to the expensive renovation of Fed Buildings. Trump is openly calling the head of the Federal Reserve a “numbskull” because he won’t cut rates while the economy is strong, inflation is rising and jobs are tight.

Jamie Dimon is on the front page of the FT warning about the risks if the independence of the Fed is tested by Trump sacking him. I wonder if Dimon has political ambitions here – being a calm, rational voice of economic common sense. Which nomination has he his sights on ?

Back in the UK my invite to the Chancellor’s Mansion House speech got lost in the post again. Chancellor Reeves promised to cut City Red-Tape to trigger deal making to finance growth… but it’s all too late and too slow. Not her fault, but that train left long-time ago… it took centuries to build the City of London’s reputation, and only 17 years to over-regulate it into irrelevance.. (a repeating theme in the Morning Porridge since it started in 2007.)

So why then do I think the UK is essentially going to recover better than the US from the current economic end-game scenario?

I don’t think the perceived Gilt Threat is as dangerous as the overly nervy market believes. There is still belief in the UK’s economic competency – which is why today’s graph (again from ChatGPT and I still not sure I would trust it) of the 10-year Gilt Yield and Cable does not show panic. If there really was genuine concern the UK is about to enter a catastrophic crisis I would expect to see a more dramatic divergence as Gilt yields went stratospheric and sterling collapsed.

At the moment these two indicators of the UK’s “Virtuous Sovereign Trinity”: a stable currency, and a sustainable bond market, are reacting to market data, economics and news, but are not showing a breakdown in the market’s view of the UK’s ongoing political competency. If the crisis deepens, there a sound reasons the expect the UK’s unparallelled ability to “muddle through” will still kick in.

That’s not the outlook for the USA. The degree of political polarisation is increasing – making the likelihood of a concerted, coordinated response to a crisis feel questionable. While Trump surprised to the upside in the BBC interview, the US will not be in great shape to weather a crisis if it arrives if MAGA is fuming about inflation and Epstein, the Fed is in bits, and Scott Bessent is in hiding lest he gets blamed.

Just saying… it could get messy.

Out of time, and back to the day job…

Bill Blain

Author, The Morning Porridge

CEO Windshift Capital

Partner Shard Capital