Wall Street trader Bill Ackman is one of Donald Trump’s most faithful backers in the financial world.

So, when the billionaire boss of Pershing Square Capital Management said on Sunday night that the President needed to put his tariff war on hold or risk a ‘self-induced, economic nuclear winter’, the shock was palpable.

Suddenly, it was clear that the stunning collapse in share prices could have devastating consequences for the global banking system, for pension pots and a fragile international economy.

Next, the world’s most respected banker, Jamie Dimon of JPMorgan, spoke out, warning that this new global trade war – with China putting up a brutal retaliatory barrier of 34 per cent against American exports – threatens to tip the whole US economy into recession.

The world has suffered three disastrous economic shocks in the past two decades. We had the great financial crisis of 2008, which wiped out banks and required a bailout of eye-watering proportions.

In 2020, Covid-19 brought the corporate world to a shuddering halt. Russia’s 2022 invasion of Ukraine then triggered a new era of inflation, with UK consumer prices soaring to a peak of 11.1 per cent. Trump’s needless trade war is triggering another such catastrophe, yet much of the world remains ill-prepared.

The legacy of the previous crises still hangs heavily over the richest G7 economies. These wealthy nations still rely on vast new government borrowing (not least to fund defence) and debt levels of more than 100 per cent of their gross domestic product (the output of the whole economy).

With no savings in hand, the world is dangerously short of tools to use against the oncoming financial tsunami.

Bill Ackman, the billionaire boss of Pershing Square Capital Management, said on Sunday night that the President needed to put his tariff war on hold or risk a ‘self-induced, economic nuclear winter’

Bill Ackman, the billionaire boss of Pershing Square Capital Management, said on Sunday night that the President needed to put his tariff war on hold or risk a ‘self-induced, economic nuclear winter’

Britain is particularly vulnerable. Last week, No10 quietly breathed a sigh of relief when the punishment heaped on us by the White House was just 10 per cent.

It’s true, we avoided the punitive tariffs imposed on the EU, China and the fast-growing Pacific nations, but our situation is different. As a world financial capital, second only to Wall Street, the UK is heavily exposed to the movements of capital markets, particularly when they fall.

When share prices drop off a cliff, investors shed equity holdings and withdraw cash – and that, in turn, creates a potentially destructive chain of events.

Many City trades are financed by borrowing. But, as markets plummet, banks want their money back and call in those loans – so threatening the very existence of the financial groups that borrowed the money in the first place.

Banks are currently recalling tens of billions of loans made in dollars.

The anger and frustration on Wall Street over a needless monetary earthquake created by the White House has rekindled memories of the 2008 crash. 

Then, an 18 per cent-plus decline in stock resulted in the collapse of the Lehman Brothers investment bank. We haven’t seen such a big collapse this time round – yet. But one venture capital group has admitted to the New York Times it is already in trouble after losing £1.5billion on its dealings.

Donald Trump unveils his suite of tariffs in the White House rose garden last week

Donald Trump unveils his suite of tariffs in the White House rose garden last week 

My great concern is that Keir Starmer’s Labour Government has not grasped the scale of the risk in the way that Gordon Brown’s administration did back in 2008/09.

Starmer’s minor relaxation of green targets for the motor industry looks wholly inadequate.

Economists at Deutsche Bank in London are urging dramatic action, including restoration of the Covid-era furlough scheme, business-support grants and emergency business loans.

Trumponomics could not come at a worse moment for Britain. This is the first week that businesses and the housing market will be hit by £40billion of tax increases from the Chancellor’s October 31 budget.

The sharp rise in national insurance contributions from 13.8 per cent to 15 per cent hits commerce hard. It is an enormous burden predicted to lead to surging unemployment.

So far, Trump’s advisers in the US are holding their nerve in the face of the colossal market reaction.

Trump’s latest tweets from Florida, where he has been on a golf break, point to a tumbling global oil price and a plunge in the interest rate on government bonds as a triumph for his assault on the world economy.

Conventional economics tells us the opposite. As pleasing as lower petrol prices may be ahead of America’s summer driving season, they point to a dramatically slowing world economy, even a slump. So do falling returns on government bonds.

The classic monetary response to a systemic crisis in the financial system is for central banks around the world to cut interest rates.

The Bank of England and the US Federal Reserve reacted to both the Great Financial Crisis and Covid-19 by cutting interest rates and powering up quantitative easing – printing more money.

Yet this time, as the current meltdown on global markets unfolds, the authorities have declined to act. The low-key chairman of the US Federal Reserve, Jay Powell, says that the tariffs are larger than expected, but that it is too soon to intervene.

Meanwhile, the Bank of England is understandably reluctant to let inflation get out of hand as it did after both the pandemic and invasion of Ukraine – a reason for keeping interest rates where they are.

So far, the governor Andrew Bailey is resisting an emergency cut.

As the risk of cascading financial failures rises, however, and as FTSE100 share prices tank, his approach could change – and probably will.

I don’t believe there’s any other choice.

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