Trump tariffs could cost UK £22bn of exports

A new analysis suggests the UK could face a £22 billion loss in exports if Donald Trump follows through on his campaign pledge to impose a 20% tariff on all imports to the United States. Economists from the University of Sussex’s Centre for Inclusive Trade Policy (CITP) warn that such tariffs could reduce UK exports by over 2.6%, primarily due to a decrease in trade with the US and wider global economic repercussions.

If Trump were to enact this sweeping tariff policy, it would be a significant blow to the UK economy, potentially reducing annual GDP by 0.8%. While Trump’s promises on tariffs might be a negotiation tactic, the possibility of them being implemented is real, according to Nicolo Tamberi, one of the researchers involved in the study.

Sectors Most Likely to Be Affected

The sectors most vulnerable to these tariffs would include industries like fishing, petroleum, and mining, which could see their exports fall by as much as 20%. Other affected sectors include pharmaceuticals and electrical equipment, which also contribute significantly to UK exports to the US.

Even industries that do not directly export goods could feel the impact. For example, transportation companies that depend on strong international trade flows could see their business suffer. Similarly, the UK’s insurance and finance sectors, which support global trade, may experience negative knock-on effects.

While many sectors would face challenges, some might benefit from reduced competition. Textiles and clothing, for example, could see a rise in demand if the US imposes much higher tariffs on Chinese exports, as Trump has proposed, reducing Chinese competition in the US market.

Uncertainty Over the Tariffs’ Exact Impact

The full extent of Trump’s proposed tariffs remains unclear. Some diplomats have suggested that the US might adopt a more pragmatic approach, possibly offering lighter tariffs to its closest allies. However, Trump’s top trade advisor, Robert Lighthizer, has been a staunch supporter of high tariffs, and his influence over trade policy could make aggressive tariff measures more likely.

In the UK, Foreign Secretary David Lammy has expressed concerns, emphasizing that imposing such tariffs on key allies like the UK could undermine long-term US interests. Lammy believes the US would ultimately recognize that alienating its closest partners is not beneficial, despite the administration’s stance on China.

However, the British government has been urged to take the threat seriously. Lord Darroch, the UK’s former ambassador to the US under Trump’s first administration, warned that the risk should not be underestimated. “Trump did tariffs in his first term on steel and aluminium. He wants to go much bigger this time. He believes in it – it’s not a bluff,” Darroch told the BBC’s Newsnight. “I think he will do it.”

Options for the UK

In light of the potential impact, UK policymakers are preparing for a difficult scenario. Chancellor Rachel Reeves and Bank of England Governor Andrew Bailey have both reiterated their commitment to advocating for free trade and open markets. However, with Trump’s tariff policies possibly looming, the UK might have to decide whether to pursue a side deal with the US administration to avoid the worst effects of the tariffs.

Alternatively, the UK could join forces with other Western allies, particularly European nations, to present a united front against the tariffs. By coordinating a response, the UK and its allies could seek to convince Trump and US lawmakers that imposing blanket tariffs would also hurt American exporters and damage the broader global economy.

Global Economic Impact

The CITP’s analysis only takes into account the effects of a blanket 20% tariff on US imports, and does not consider potential retaliatory tariffs from Europe or Asia. However, the International Monetary Fund (IMF) has warned that a large-scale trade war could have devastating consequences for the global economy. In a recent report, the IMF estimated that such a trade conflict could drive inflation up and shrink the global economy by 7%—equivalent to the combined economies of France and Germany.

The prospect of a trade war has raised alarm among economists, who warn that the consequences of such protectionist policies could be far-reaching, affecting not only exports but global supply chains, inflation, and economic growth worldwide.

Conclusion

The threat of a 20% tariff on all imports to the US under Donald Trump’s administration could cost the UK up to £22 billion in exports, according to the University of Sussex’s CITP. Sectors like fishing, petroleum, pharmaceuticals, and electrical goods could be hit hardest, while transportation and financial services may also experience indirect effects. With many uncertainties surrounding the precise nature of Trump’s tariff plans, the UK must weigh its options carefully, whether that means negotiating with the US or joining other global powers in resisting such trade barriers. The broader global consequences of these tariffs could be severe, and both the UK and the international community will be closely watching the developments in US trade policy.