Trump’s dollar gamble: All hell could break loose when the Iran conflict subsides, says ALEX BRUMMER

The White House and International Monetary Fund sit just two blocks apart in downtown Washington.

And the US is the biggest shareholder in the global financial monitor, which it created at Bretton Woods.

Yet successive US governments usually ignore the admonitions in the Fund’s annual inspection of the nation’s economy. It is as if the IMF is for everyone else but must live with American exceptionalism.

A quick reading of the latest ‘Article 4’ inspection of the US would tell the world why President Trump’s assumption that America has unlimited resources to police the world must be taken with a pinch of salt.

 Even before America’s decision to join Israel in a military assault, with 1,700 sorties over Iran, the country’s public finances were way off track.

The budget deficit, running at 7 per cent to 8 per cent of national output, is at twice the level targeted by US Treasury Secretary Scott Bessent. If not tamed, debt will reach 140 per cent of gross domestic product by 2031.

The IMF went on to argue that the scale of this fiscal shortfall represents a risk not just to American economic stability but that of the world.

Donald Trump’s war on Iran makes this considerably worse. The costs of the deployment of Trump’s armada in the Gulf are mounting by the day. 

Some $700million was spent on advanced fighter planes and missile systems in the first 24 hours using ordnance that is far more expensive than Iran’s drones.

Despite the rocky state of the public finances, the White House is asking Congress for a 50 per cent uplift in military spending to $1.5 trillion, while at the same time lowering taxes on wealthier Americans. 

The President argues that the US’s forecast growth rate of 2.4 per cent for 2026 will pay the bills.

Maybe, but that takes no account of unexpected costs such as the $175billion of income from tariffs at risk because of the Supreme Court’s recent warning. 

America has long enjoyed the exorbitant privilege of being the world’s reserve currency.

Indeed, its status as a haven has improved since the outbreak of Middle East hostilities. But when conflict subsides, all hell could be let loose on the bond and currency markets.

Home coming

Will Rachel Reeves have the last laugh? Her £75billion or so of tax raising since becoming Chancellor may have provided the Government with fiscal headroom, but it has come at a terrible cost. 

Latest analysis from broker Rathbones shows that 6,000 high growth business owners left Britain between January 2024 and January 2026, frightened off by wealth taxes.

The end of non-domicile tax status, higher inheritance, capital gains and venture capital levies made the UK a much less attractive place for enterprise and entrepreneurship.

Some of those leaving have chosen Italy or Portugal for refuge. But for many, Dubai, with its increasingly sophisticated financial infrastructure and terrific travel connections, has been the destination of choice.

Loss of entrepreneurship clearly has come at a huge cost to UK growth, and taxing the better off until the pips squeak, plainly is a terrible mistake. 

Nevertheless, there is something deeply disturbing about those with the most resources fleeing these shores, leaving those of us left behind to pick up the slack.

Entrepreneurs who thought they would find tranquillity and easy access to finance in the Gulf might be starting to feel queasy as the current Iran conflagration spreads to nations previously insulated from conflict.

Air miles

There are always winners from conflict. A friend heading for Bali this week told me that when two flights booked via Dubai were cancelled, they were offered alternative business-class tickets via Singapore for £9,000 extra. They decided to head for South Africa instead.

Ryanair’s Michael O’Leary is never slow to see an opportunity.

He reports a take-off in short-haul Easter holiday bookings to European destinations as travellers recoil from trips to the Middle East. O’Leary predicts no change in longer-term bookings.

If the panicked response of many of those trapped in the hostile surroundings of ultra-luxury Dubai hostelries is any guide, he could be wrong.