The Ripple Effect: How Trump's Tariffs Are Set to Impact the UK Economy

In a significant trade development, the UK has been subjected to President Trump’s 25% tariffs on steel and aluminium, despite hopes for exemption. Prime Minister Keir Starmer has not retaliated immediately, but the likely economic ramifications are being closely examined.

In 2024, the value of the UK’s raw steel and aluminium exports to the US is approximately £470 million, but the tariffs also cover a wide range of products made with these materials—encompassing gym equipment, furniture, and machinery, which adds another £2.2 billion worth of exports. Overall, nearly £2.7 billion of UK exports to the US could be affected, which constitutes just under 5% of the UK’s total exports to the US, valued at around £58 billion annually.

While the UK hopes for a free trade agreement that could alleviate these tariffs, the timeline for such a deal remains uncertain. Trump has also threatened reciprocal tariffs on trading partners, including the UK, particularly targeting those countries with higher Value Added Tax (VAT) rates, which the US perceives as discriminatory. Given the UK’s standard VAT rate of 20%, it could face significant additional tariffs.

In contrast, the European Union has already signalled its intent to impose tariffs on €26 billion (approximately £22 billion) worth of US imports, targeting politically sensitive goods such as Bourbon whiskey and Harley-Davidson motorcycles.

Justifications for Trump’s tariffs include restoring fairness to US trading relations, increasing tax revenue for the government, and pressuring other nations to amend certain policies. Critics argue that these diverse goals are contradictory and that tariffs will likely lead to elevated consumer prices in the US. Economists largely doubt the effectiveness of tariffs in achieving Trump’s objectives of increasing domestic manufacturing and reducing trade deficits.

The UK government may come under pressure to retaliate against the US measures, particularly if the EU proceeds with its planned tariffs. As the situation evolves, the UK faces a precarious economic landscape influenced by US trade policies.