US President Donald Trump has already announced a 25% tariff on all cars imported to the US, as well as import taxes on steel and aluminium, but how will tariffs impact the UK?
Donald Trump has unveiled a wave of “Liberation Day” tariffs with all countries across the world being impacted. The UK has been hit with reciprocal tariffs of 10% on exports to the US, which could lead to higher prices for UK consumers.
New 20% tariffs have also been confirmed for the European Union. The US President had already announced a 25% tariff on all cars imported to the US, as well as import taxes on steel and aluminium. Downing Street has confirmed it will keep attempting to strike an economic deal with the White House to mitigate the tariffs – but nothing has been firmed up yet.
Business secretary Jonathan Reynolds told Sky News the UK is “in a relatively better position” compared to other countries, but said the 10% tariffs are still a “disappointment” for UK officials. He said: “We’ll take any powers we need to protect the British people and the British economy from that.”
When tariffs are introduced, the importers of the goods are the ones who pay extra – so in this case, American companies – but this means they normally put up prices in return to mitigate the costs, so customers end up paying more. President Trump argues that tariffs will encourage US consumers to buy more goods from American companies.
But if prices go up, economists say this could impact global inflation, which is the measure of how prices are rising. This could then have a direct impact on interest rates in the UK, which can affect how much you pay for your mortgage, according to Myron Jobson, Senior Personal Finance Analyst at Interactive Investor.
The Bank of England has been slowly reducing its base rate, which is currently set at 4.5%. Mr Jobson said: “If tariffs contribute to higher inflation, central banks may be forced to tighten monetary policy, which can weigh on bonds and borrowing costs. This could impact everything from mortgage rates to corporate investment, potentially slowing economic growth.
“For investors with exposure to US equities – either directly or through pension funds and ISAs – this could translate into market turbulence. Any sell-off in US stocks could drag down the performance of funds with heavy US exposure – not least global funds as they typically have a substantial weighting to US equities.“
But long-term investors shouldn’t panic, according to Mr Jobson, as it is normal for stock markets to move up and down. He said: “Long-term investors should resist the urge to make knee-jerk decisions based on short-term market movements. A well-diversified portfolio remains the best defence against geopolitical shocks. As ever, staying the course and ensuring a balanced investment strategy is key.“
There is also the knock-on impact for the UK economy. The Office for Budget Responsibility this week warned that a global trade war – not just on cars – could wipe out Chancellor Rachel Reeves’ £9.9billion of wiggle room, increasing the risk of further tax rises and spending cuts.
Richard Hughes, head of the OBR, said: “The UK’s exports of goods to the US account for about 2% of GDP (gross domestic product), car exports are about 10% of that. What Trump announced overnight is not the whole of that worse case scenario but it is the beginning of that risk.”
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