Snapshot: Trump’s Tariffs from Across the Pond
Key Points/Exec Summary
Liberation Day Fallout: Trump’s imposition of retaliatory tariffs on US trade partners, while now on hold for 90 days aside from China (although levies on smart phones have been removed at the time of writing), has amplified the severe predicament facing the incumbent UK Government in addressing both longstanding fiscal and industrial issues and its international trade policy approach.
Tariff disruption: While the White House has imposed a 90-day pause on all retaliatory tariffs announced on Liberation Day, the reality of how vulnerable and constrained key UK sectors, such as the steel, automotive, and food and drink industries, are to global trade shocks warrants an accelerated and comprehensive Government approach that can achieve economic growth and security over the next decade.
Geopolitical quagmire: However, the UK faces a geopolitical quagmire. It is now forced to contend with the inconvenient truth of which bilateral partners it must engage with to reduce trade barriers, increase its export base, and support domestic industry while maintaining a historically close relationship with Washington. We argue it must seize the moment and lead about the change the incumbent Government promised in its victorious election less than 12 months prior.
President Trump’s decision to impose a 10% tariff on nearly all imports to the US, including a particularly harsh 25% on automotive products, signals the “death knell” of global trade. While, at the time of writing, Trump has paused all tariffs - aside from those aimed at China - announced on ‘Liberation Day’, the ramifications for the global economic order of recent memory are profound.
In the UK, while the Prime Minister Sir Keir Starmer may have felt relieved that the UK avoided the 20% flat tariff that other major countries and regions, such as the European Union (EU), faced in the immediate aftermath of the US President’s Liberation Day announcements, the UK faces significant questions on where it may position itself within the increasingly fragmented post-globalised international order.
Implications for the UK
Economic and Fiscal Implications
One week before the Liberation Day announcement, the UK Chancellor of the Exchequer, Rachel Reeves, delivered her Budget Statement in March, with key priorities aimed at fostering economic growth, transforming the UK’s limited industrial base, enhancing the UK’s economic competitiveness, all while traversing her Treasury’s self-imposed ‘fiscal lock’ to ensure ‘economic stability’. While her announcement was more akin to a ‘status update' as there was no major budget announcement such as that at the end of last year, Reeves did confirm an additional £2.2bn increase in defence spending, ahead of the previously scheduled £2.9bn rise in 2026. This would, in theory, bring UK spending up to 2.5% of GDP by April 2027, moving to its ultimate goal of meeting an ambitious 3% by the next parliament (four years away).
However, her fiscal capacity remains increasingly constrained due to long-standing economic stagnation, and now, she is in an aggressively protectionist international landscape. Less than ideal forecasts from the Office for Budget Responsibility (OBR), which halved the UK’s growth forecast from 2% to 1% for 2025, broadly aligned with the Bank of England’s February prediction, which claimed GDP growth for 2025 to reach 1.5%. While reversed for now, Trump’s actions on Liberation Day highlighted the UK’s increasingly fragile position in the global economic landscape, exposing its vulnerability to global trade dynamics, and its limited industrial base and reliance on international supply chains.
Industrial Impact
Regardless of the direct ramifications of Liberation Day or the uneasiness of the tariffs being put on hold for 90 days, damage to trust and confidence has been done globally. The long-term implications of a trigger-happy US President emboldened by his protectionist stance on the global trading environment will remain substantive. The various ways in which these directly affect the UK’s domestic industrial and services base, while constantly evolving, have been summarised as follows:
State of play: UK goods exports to the US in the pre-Tariff announcement reportedly rose 23% between January and March, with total exports increasing by 1.1% in February, equivalent to a £0.4bn rise to £5.9bn. For 2024, the UK enjoyed a slim trade surplus with the US exporting a total of £59.3bn of goods (accounting for approximately 16% of all UK goods exports) while only importing £57.1bn of US goods or nearly 10% of all goods imported for the same year.
Key UK Industries Affected: The primary sectors immediately at risk following the Liberation Day announcements for the UK included the steel, automotive, food and drinks, with the automotive industry particularly vulnerable.
Steel: UK steel exports to the US account for roughly 9% of the value of all UK steel exports. Longstanding trends have seen UK steel production decline given international competition, leaving the country with a solitary domestic steel plant, which the Government has, as of Friday 11 April, recalled Parliament from its scheduled Easter Recess to fast-track legislation to nationalise the site to ensure continued domestic production. If the UK lost the site, it would be the only G7 country without a domestic steelmaking base. There is little to no doubt that the urgency of the government’s announcement directly responds to the actions of the Trump White House.
Automotive: UK automotive exports to the US market were estimated to account for £7.6bn on an annual basis. The US is the single largest market for UK automotive exports, a critically exposed sector now facing a 25 per cent duty to enter the US market. As a result, the industry remains primed to receive targeted support from Downing Street.
Food and Drink: The UK’s food and drink industry, especially its whisky exports—like Scotch whiskey—rely heavily on the US market. While the US remains the biggest market for Scotch Whiskey (valued at £1.2bn), the impact of the 25% tariff between 2019 and 2021 led to a £600 million export loss for the industry, highlighting the fragile status of the sector in managing further US tariffs on its exports.
Indirect Impacts: UK supply chains, many of which rely on components and materials sourced from the US, will also feel the pressure and likely look for more reliable partners to source from. Additionally, the UK’s economic ties with the EU, which faces tariffs, will likely compound the disruption. The EU is still the largest trade partner for the UK, but it requires the UK to maintain high regulatory standards, which the US sees as a hindrance to greater transatlantic trade, but a standard the British people will find crucial to their welfare. Trade diversion could occur as UK businesses explore alternative markets, but the transition may not be smooth and will likely be costly.
Industry sentiment and response
Amidst the fallout from Liberation Day and following Washington’s U-turn a week later. The UK Government has faced urgent calls to action from key industry groups, such as the Confederation of British Industry (CBI), British Chambers of Commerce (BCC) and UK Steel, all calling for Government guidance, clarity and stressing the need for Government not to ignore the reality of how limited small and medium-sized enterprises (SMEs) will be in absorbing the financial pressure if tariffs were to kick in after the 90 days. The BCC and CBI have been particularly vocal in calling for the Government to pursue accelerated negotiations with Washington on a comprehensive trade agreement to safeguard UK exports from universally imposed US tariffs. Both claim an absence of winners in trade wars.
Simultaneously, the Business Trade Committee (BTC) outlined recommendations through a “Green Paper”, advocating for a comprehensive reset of UK-EU relations to mitigate the implications of external trade barriers. This was, of course, timed with Trump’s tariff announcement one day prior. However, the Government remains constrained on which side to best align with as it manages post-Brexit relations with the European bloc while pursuing a US Trade Deal to placate and soften fears from the domestic industry. These tensions encapsulate the precariousness of the UK’s position in balancing its partnership with the EU while appealing to the Trump White House.
Security & Defence: The EU-UK security pact remains critical for Britain's defence industry, particularly as global instability rises. Closer coordination on defence industrial strategy could help bolster resilience against external shocks. This aligns with the UK’s broader defence spending strategy, which aims to enhance its military capabilities amid growing geopolitical uncertainty. Establishing such a pact, which could happen as early as May, would enable UK firms to participate in EU-led defence initiatives. For the UK, such a deal is critical as it may come with access to a part of the newly announced “Readiness 2030” funds, for the EU, the objective will be to wield this newfound British interest in Europe to obtain concessions in other policy areas. While little is known about what the UK is willing to put on the negotiation table, Rachel Reeves has already hinted at the removal of barriers to trade, particularly in the food and chemicals industries and the mutual recognition of qualifications.
Learning from Others.
Other countries and blocs show a variety of paths to responding to Trump's tariffs. Some might offer credible options for the UK’s response, while others might harm the UK if they were undertaken.
The Nuclear Option: The example of China is not likely to be reproduced by any individual nation, let alone the United Kingdom. With the country initially responding to liberation day with an 84% universal tariff, which has now risen to 125%, trade relations between Shanghai and Washington looked to be headed to a race to the bottom driven by ego rather than sound economic choices (though, the US have appeared to dial the rhetoric down in recent days). This example, and Washington's newly announced 145% tariff rate on Chinese products, confirm that retaliation is out of the question for the UK, which lacks the diplomatic will, nor the necessary economic capacity to engage in a trade conflict with a turbocharged protectionist Washington.
The Diplomatic Standoff: The example of the EU leaves more room for inspiration from the UK. In terms of retaliatory tariffs, Brussels has taken a more diplomatic approach. The Union plays a subtle but dangerous double game, alternating between menacing tariffs on 21bn worth of US goods and making statements of goodwill and openness to negotiations. The objective is to arrive at the negotiation table with the status of a strong rival rather than a demanding friend. Indeed, the aforementioned package of sanctions is frozen rather than discarded, which allows Brussels to activate it the second it becomes necessary. However, this solution is likely to be effective only due to the economic might of the single market and incompatible with the smaller scale of trade relations between London and Washington.
The Double Game?: The EU just initiated talks with the United Arab Emirates for a new trade deal. For the UAE, this is the consecration of a long-standing policy of signing trade agreements, the EU being its primary partner. For Brussels, this choice is one of two things. It is either a backup plan in case its companies are virtually excluded from the US market, or it's a strategy to help the EU gain the upper hand in the upcoming US and EU negotiations. Indeed, the EU could understate its economic dependency on the US and secure more advantageous deals in other parts of the world. The EU will likely continue pursuing new trade agreements with the United Kingdom.
What does this mean for the UK: Undoubtedly, ‘Liberation Day’ has taken the UK by surprise, and the objective for the country is now to reposition itself in the international economic order. To do so, it should prioritise reducing its reliance on the US, which logically means realigning with the European Union, perhaps by reinforcing the Trade and Cooperation Agreement. Additionally, such a diversification of its income sources can be leveraged in future negotiations with the United States.
Fallout pre-90-day pause
While the US tariffs have been paused, the initial announcement may have already unleashed a Pandora’s box of lasting damage. Global markets remain in flux. The US bond market and the US dollar - the international reserve currency - remain volatile due to a dramatic drop in investor confidence. However, Trump’s defiant actions have shaken the faith of friends and foes on the global stage.
Impact on UK-US Relations: These tariffs represent a significant test for UK-US relations. The UK’s ability to maintain a cooperative relationship with the US, while mitigating the economic impact of the tariffs, will be key in navigating this new era of trade protectionism.
Labour Government’s Positioning: Within a day of Trump’s Liberation Day announcements, Jonathan Reynolds, the UK’s Secretary of State for Business and Trade, quickly stressed the close US-UK trading relationship valued at £315bn. However, Reynolds also announced a four-week consultation, encouraging domestic industries to inform the Government’s response to these tariff announcements.
Reynolds’ counterpart, Andrew Griffith, the Conservative Party’s Shadow Secretary of State for Business and Trade, criticised the government’s handling of the tariff imposition and called for immediate action to support exporters, reduce energy costs, and clarify regulatory policies.
Recommendations
Manifest destiny: The UK needs a unified strategic vision to meet the challenges of international trade disruption and global economic fragmentation. It can no longer rely on the patchwork of ad hoc responses it has depended on - perhaps as a means to avoid falling foul of Washington in hopes of securing a favourable position after the 90-day window ends. This will require coordinated fiscal and monetary policy to project stability and leadership, alongside the following measures. The Chancellor, lauding the trading relationship with the EU per her Government’s UK-EU “reset” in its relationship, is a positive step.
Economic Risks and Responses: Trump’s tariffs present significant risks to the UK economy, particularly for industries like automotive and steel. The UK government must continue its efforts to negotiate a favourable deal with the US while preparing for the broader economic challenges posed by global protectionism. Any trade deal the UK signs should be focused on specific sectors and ensure that agriculture, food standards, the NHS, and even free speech standards are not sold out to US interests, to safeguard the UK’s socio-economic sovereignty.
Business Impact: SMEs, in particular, will face difficult decisions as they navigate the uncertain landscape created by the tariffs. The business community must engage with US customers and explore alternative markets, especially with large markets such as India, the EU, CPTPP, and MERCOSUR regions. In essence, the UK must seize the moment to accelerate existing strategic trade negotiations and economic diversification.
Recommendations
Negotiation Strategy: The UK must remain engaged in negotiations with the US, as tariffs could always be lifted. An avenue for the Government should be to leverage the UK’s existing trade surplus with Washington on rare goods. The government must leverage the strong bilateral trade relationship to secure the best possible deal for the UK.
Government Support: The government must be prepared to provide financial support to affected industries, particularly through schemes like the British Business Bank’s Growth Guarantee, to help firms maintain cash flow during this period of instability.
Looking Ahead: While the UK should safeguard key sectors, such as the automotive industry, during ongoing talks with US officials, it must also prepare for the possibility that the current 90-day reprieve is overturned. This scenario epitomises the nature of the newly charted course for the Starmer Government’s trade and economic policy - a direction it should be well-acquainted with: change.
Change - a mandate and urgent duty: Starmer campaigned on change during the 2024 election, and the current circumstances leave his Government with no choice but to commit both itself and the country to it. The UK-EU reset is a striking example of how geopolitical realities are shaped by change, and the UK’s trade focus, and its approach to securing new opportunities for importers and domestic exporters, must reflect that same adaptability. The UK must act with the urgency its domestic industry demands.
Forging a New World Order: The US-led economic world order has passed its expiry date, and its future remains increasingly untenable. Former UK Prime Minister Gordon Brown recently noted the “herculean” effort but plausible reality of manifesting a “1940s” moment. The UK must seize the moment, play a leading role in achieving its promised change and facilitate reinforcing its interdependent networks to navigate these volatile times. Time remains of the essence.