Trump Tariffs on UK Would Be ‘Manageable,’ Economists Say
(Bloomberg) -- President-elect Donald Trump’s threat to slap a universal tariff of up to 20% on all goods exported to the US would be “unwelcome but manageable” for the UK, according to analysis from Bloomberg Economics.
Most Read from Bloomberg
Saudi Neom Gets $3 Billion Loan Guarantee From Italy Export Credit Agency Sace
NYC Congestion Pricing Plan With $9 Toll to Start in January
The majority of UK sales to the US are services, meaning they would be largely unaffected by a tariff on goods. Even if Trump pushed ahead with proposals to impose a 60% tariff on goods from China, and trading partners around the world retaliated in kind, the disruption would likely only cause a 0.2% hit to the UK economy by 2028, economist Dan Hanson said in a note published Thursday.
The analysis will still be troubling for Prime Minister Keir Starmer, who has vowed to boost economic growth in the UK since being elected in July. If he is to keep that promise, he will need to make gains wherever possible — meaning trade talks with the US are likely to be bumped up the political agenda as the UK seeks to avoid the worst of Trump’s protectionism.
The previous Conservative government failed to sign a free-trade agreement with the US during Trump’s first presidency, and a private note prepared by UK officials for Labour ministers laid out how the two countries had been struggling to agree on several issues during negotiations in 2020.
Hanson said the true effect of Trump’s tariffs may come from more indirect factors.
“If the UK does face an increase in tariffs, the economic impact won’t be proportionate to the size of the trade balance,” he wrote. “Instead it will be the trade intensity of the economy, along with its exposure to the US and the availability of substitutes, that determines the scale of any fallout.”
In 2023, 22% of UK exports went to the US — equivalent to 7% of UK GDP, according to Britain’s Office for National Statistics. Of that, 68% was services. Goods exports, which were equivalent to 2.2% of UK GDP, were predominantly made up of cars and medical and pharmaceutical products.
Figures from the ONS show the UK runs a small trade surplus in goods with the US — but due to discrepancies in the way the data is measured and the geographies included, US figures show that it also has a trade surplus in goods with the UK.
That worked to the UK’s advantage during previous negotiations with Trump, according to former Trade Minister Greg Hands. Trump is keen to target countries with which the US has a large trade deficit, and doesn’t see the UK as falling into that category, Hands said in an interview.
Hanson warned there was a “big risk in the near-term” that disruption in global trading patterns, as countries turned away from the US, could leave the UK “vulnerable to a significant hit to GDP and a renewed bout of upward pressure on prices.”
“The implications for the BOE would be far from straightforward,” Hanson wrote. “But if the net impact of tariffs looks like it could be inflationary, we’d expect the central bank to focus its attention there, rather than moving to support the economy.”
However, “our baseline view is that any hit will be unwelcome but manageable.”
Most Read from Bloomberg Businessweek
North Dakota Wants Your Carbon, But Not Your Climate Science
A Guide to Trump’s Tariff Plans: Expect High Drama and a Bumpy Rollout
Martha Stewart’s Empire Monetized More Than Just Domesticity
©2024 Bloomberg L.P.
