As Trump pushes ahead with new tariffs, the UK faces potential trade challenges. What does this mean for the UK economy and industries?
Tariffs have become a hallmark of Donald Trump’s second term as US president, with the controversial leader targeting goods such as aluminium, steel, cars, and even champagne. His decision to impose tariffs has sparked a heated global debate, with the US focusing its efforts on nations like China, Mexico, and Canada. But how will these moves affect the UK?
What Are Tariffs and Why Is Trump Using Them?
Tariffs are essentially taxes on imported goods, with the aim of protecting domestic industries by making foreign products more expensive. When tariffs are imposed, it’s American companies that pay these taxes, but the cost ultimately gets passed onto consumers in the form of higher prices. For foreign nations, this makes their goods more costly and harder to sell in the US market.
Trump’s use of tariffs, especially during his second term, has been a significant element of his strategy to reshape trade relations globally. He has already imposed taxes on China and other countries and promised additional tariffs on nations that he believes aren’t offering fair trade deals with the US. These tariffs are not just limited to specific goods, but are also part of Trump’s broader vision for ‘reciprocal’ trade policies, meaning that other countries could face tariffs if they have similar barriers to American products.
What Is ‘Liberation Day’?
Trump has designated 2 April as “Liberation Day”, a day when he might unveil further tariffs on countries that he claims are unfairly treating the US in trade agreements. This move has been shrouded in ambiguity, with Trump sending mixed messages about how many countries could be targeted. In some statements, he indicated that all countries might be hit by tariffs, while in others, he suggested there could be room for negotiations.
The exact nature and extent of these new tariffs remain unclear. However, 2 April will mark a critical moment when Trump’s plans for “reciprocal tariffs” could become clearer.
How Might the UK Be Affected?
The UK has been negotiating an economic deal with the US to avoid being heavily impacted by these tariffs. UK Prime Minister Keir Starmer has been actively involved in talks, with Downing Street confirming progress on a potential UK-US “economic prosperity deal”. Starmer acknowledged that tariffs were likely to be imposed but expressed confidence in finding a resolution through discussions, though he admitted that retaliatory tariffs might be considered if necessary.
While there is no major trade imbalance between the US and the UK, the UK’s car sector—its largest single market for exports—could be hit hard by the new tariffs. Manufacturers like Jaguar Land Rover, Aston Martin, and Rolls-Royce could face a 25% tariff on all car exports to the US, which could increase the price of UK-made vehicles sold in America.
What Tariffs Have Already Been Imposed?
Some tariffs have already been implemented. Trump has introduced a 25% tariff on all car imports to the US, which will affect car parts as well. This could complicate matters for American car manufacturers who rely on global supply chains, including imports from the UK.
The UK’s steel and aluminium industries are also facing new tariffs, with the US imposing a 25% tax on steel and a 10% tax on aluminium. This will affect UK exports worth millions of pounds.
In addition to the tariffs on car imports, Trump has also promised to impose a 25% tariff on imports from countries that purchase oil or gas from Venezuela, a move that could include the US itself.
Global Response to Trump’s Tariffs
The international community has not been silent on Trump’s tariff policies. Canada and China have already retaliated with their own tariffs, targeting a range of US products. The European Union has also signalled its intent to impose retaliatory tariffs, which could include products such as textiles, home appliances, agricultural goods, and whiskey. These responses have created a tense global trade environment and have raised concerns about the potential for an all-out trade war.
How Will This Affect the UK Economy?
Even if the UK is spared from additional tariffs, the broader economic impacts of Trump’s tariff wars are likely to affect the UK. Higher costs in the US due to tariffs are expected to result in inflation, which will, in turn, affect global economic conditions. US interest rates could remain elevated for longer, contributing to slower growth in both the US and the UK.
The National Institute of Economic and Social Research (NIESR) has predicted that UK GDP could be between 2.5% and 3% lower over the next five years due to these trade disruptions. The hardest-hit sectors would likely include industries that rely on US exports, such as fishing and mining.
Conclusion
While the UK hopes to avoid significant tariffs through ongoing negotiations with the US, the broader implications of Trump’s tariff policies cannot be ignored. The economic fallout could result in higher prices for consumers, especially if the tariff wars escalate further. For now, the UK remains in discussions with the US, hoping to strike an economic deal that will shield key industries from the full impact of these policies. However, the uncertainty surrounding Trump’s trade approach means the UK must remain prepared for all outcomes.
