January 16, 2026
Brexit lessons for Donald Trump
Turning away from free trade will hurt the U.S. too.
To the point!
Brexit is a raised finger of warning for the more protectionist stance of the U.S. administration.
He didn’t waste any time. Just weeks after taking office, nearly a year ago, Donald Trump pulled the tariff blunderbuss from the shed and fired it more or less haphazardly in every direction. Even though financial markets quickly pushed back against the maximal protectionism of Trumps Liberation Day and Washington soon began to hail “historic” trade deals on a near-weekly basis, the average tariff rate on U.S. goods imports today is a multiple of what it was at the start of 2024. U.S. import duties haven’t been this high since the 1920s (see fig. 1). That episode did not end well – economically least of all.
Fig. 1: Average Tariff on U.S.-imports
%, Last obs 17.11.2025
⬤ {series.name}: {point.y}
It may seem far-fetched to compare today’s landscape with the run-up to the Great Depression. We have learned a great deal since then about how to avoid such deep ruptures. Trump may shrug off these insights, convinced that protectionism will make America “great” again. But the rest of the world has presumably – hopefully! – learned from past mistakes. One wonders, by the way, when exactly the United States was so “great” that one might plausibly hope for its return. Judging by the standard macro indicators, prosperity from Washington State to Washington, D.C. has never been higher than it is today. Yet rose-tinted nostalgia appears to outshine reason.
What Brexit teaches us
Surely driven by a measure of nostalgia was what is arguably the most radical retreat from globalization and free trade since the end of the second world war: the UK referendum on leaving the European Union. In 2026 it will mark its tenth anniversary indeed, a sobering milestone. The outcome is well known: after years of wrangling over exit terms, the United Kingdom formally left the EU on January 31st, 2020, as agreed.
While Brexiteers fantasized about “Singapore-on-Thames,” most economists were deeply pessimistic. Severing the umbilical cord to your largest trading partner: how could that possibly end well?
The apocalyptic forecasts initially seemed not to be borne out. London remains Europe’s undisputed financial center, and the much-touted deep recession either failed to arrive or was masked by the pandemic’s aftershocks. Yet recent studies suggest that stepping away from the EU’s trade regime has never-theless inflicted economic damage. Britain’s economy today appears to be 6% to 8% smaller than it would have been without Brexit. The initial projections have largely come true – just more slowly than expected. A key brake on the post-Brexit economy has been weak investment: referendum-induced uncertainty made firms hesitant (see fig. 2). That lowered productivity by roughly 4% and ultimately diminished British living standards rel-ative to EU citizens (see fig. 3).
Fig. 2: Growth rate investment: UK minus EU
2010-2024, percentage points, five-year moving average
Fig. 3: Little Britain: Income per capita in purchasing power parity
UK relative to EU
⬤ {series.name}: {point.y}
Deferred is not forgiven
Brexit is a raised finger of warning for the more protectionist stance of the U.S. administration. America’s economy, too, has held up better so far than many economists expected (LBBW Research’s 2% growth forecast a year ago was fairly close). And inflation did not surge as feared in the immediate wake of the Liberation Day.
So, much ado about nothing? In my view: no. I expect the U.S. will feel the effects of its partial exit from the world economy – much as Britain did after Brexit – but with a lag that will test the patience of some forecasters. Uncertainty over future tariff parameters, and thus firms’ cost bases, is already deterring investment in the U.S. Without sustained capex into AI data centers, broader U.S. investment growth stalls.
As in Britain, that will gradually weigh on productivity, growth and inflation overall. Accordingly, LBBW Research projects lower U.S. growth in 2026 than the consensus: 1.5% versus 2.1%. We see inflation higher than markets expect: 3.0% versus 2.8%. Policy uncertainty around U.S. trade will remain elevated in 2026. The parallels to post‑Brexit Britain are, to put it mildly, not encouraging at all.
Dr. Moritz Kraemer, Chief Economist / Head of Research at LBBW
Download To the point!
-
372.1 KB | January 16, 2026
This publication is addressed exclusively at recipients in the EU, Switzerland, Liechtenstein and the United Kingdom.
This report is not being distributed by LBBW to any person in the United States and LBBW does not intend to solicit any person in the United States.
LBBW is under the supervision of the European Central Bank (ECB), Sonnemannstraße 22, 60314 Frankfurt/Main (Germany) and the German Federal Financial Supervisory Authority (BaFin), Graurhein-dorfer Str. 108, 53117 Bonn (Germany) / Marie-Curie-Str. 24-28, 60439 Frankfurt/Main (Germany).
This publication is based on generally available sources which we are not able to verify but which we believe to be reliable. Nevertheless, we assume no liability for the accuracy and completeness of this publication. It conveys our non-binding opinion of the market and the products at the time of the editorial deadline, irrespective of any own holdings in these products. This publication does not replace individual advice. It serves only for informational purposes and should not be seen as an offer or request for a purchase or sale. For additional, more timely in-formation on concrete investment options and for indi-vidual investment advice, please contact your investment advisor.
We retain the right to change the opinions expressed herein at any time and without prior notice. More-over, we retain the right not to update this information or to stop such updates entirely without prior notice.
Past performance, simulations and forecasts shown or described in this publication do not constitute a reliable indicator of future performance.
The acceptance of provided research services by a securities services company can qualify as a benefit in supervisory law terms. In these cases LBBW assumes that the benefit is intended to improve the quality of the relevant service for the customer of the benefit recipient.
Additional Disclaimer for recipients in the United Kingdom:
Authorised and regulated by the European Central Bank (ECB), Sonnemannstraße 22, 60314 Frank-furt/Main (Germany) and the German Federal Financial Supervisory Authority (BaFin), Graurheindorfer Str. 108, 53117 Bonn (Germany) / Marie-Curie-Str. 24-28, 60439 Frankfurt/Main (Germany). Authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request.
This publication is distributed by LBBW to professional clients and eligible counterparties only and not retail clients. For these purposes, a retail client means a person who is one (or more) of (i) a client as defined in point (7) of Article 2(1) of the UK version of Regulation (EU) 600/2014 which is part of UK law (UK MiFIR) by virtue of the European Union (Withdrawal) Act 2018 (EUWA) who is not a professional client (as defined in point (8) of Article 2(1) of UK MiFIR); or (ii) a customer within the meaning of the provisions of the Financial Services and Markets Act 2000 (as amended, the FSMA) and any rules or regulations made under the FSMA (which were relied on immediately before the 31 December 2020 (IP completion day)) to implement Directive (EU) 2016/97 on insurance distribution, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of UK MiFIR; or (iii) not a qualified investor as defined in the UK version of Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, which is part of UK law by virtue of the EUWA (the UK Prospectus Regulation).
This publication has been prepared by LBBW for information purposes only. It reflects LBBW’s views and it does not offer an objective or independent outlook on the matters discussed. The publication and the views expressed herein do not constitute a personal recommendation or investment advice and should not be relied on to make an investment decision. The appropriateness of a particular investment or strategy will depend on an investor’s individual. You should make your own independent evaluation of the relevance and adequacy of the information contained in this publication and make such other investigations as you deem necessary, including obtaining independent financial advice, before partici-pating in any transaction in respect of the financial instruments referred to this publication herein.
Under no circumstance is the information contained within such publication to be used or considered as an offer to sell or a solicitation of an offer to buy any particular investment or security. Neither LBBW nor any of its subsidiary undertakings or affiliates, directors, officers, employees, advisers or agents accepts any responsibility or liability whatsoever for/or makes any representation or warranty, express or implied, as to the truth, fullness, accuracy or completeness of the information in this publication (or whether any information has been omitted from the publication) or any other information relating to the, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of this publication or its contents or otherwise arising in connection therewith.
The information, statements and opinions contained in this publication do not constitute or form part of a public offer. LBBW assumes no responsibility for any fact, recommendation, opinion or advice con-tained in any such publication and expressly disclaims any responsibility for any decisions or for the suitability of any security or transaction based on it. Any decisions that a professional client or eligible counterparty may make to buy, sell or hold a security based on such publication will be entirely their own and not in any way deemed to be endorsed or influenced by or attributed to LBBW.
LBBW does not provide investment, tax or legal advice. Prior to entering into any proposed transaction on the basis of the information contained in this publication, recipients should determine, in consultation with their own investment, legal, tax, regulatory and accounting advisors, the economic risks and merits, as well as the legal, tax, regulatory and accounting characteristics and consequences, of the transac-tion.
