A second Trump presidency has serious ramifications for global trade. The former business mogul has promised to introduce tariffs of up to 20% on all US imports, increasing to 60% for products coming from China, in an effort to encourage Americans to buy American. The International Monetary Fund (IMF) has warned this will damage global growth, wiping 0.8% from economic output next year.
Given the US is our biggest individual trading partner accounting for over £300bn per year, the news from across the pond is particularly relevant for the UK. Tariffs on UK exports to the US pose uncertainty for British businesses, particularly at a time when the UK Government is focused on rebuilding our economy and promoting growth at home.
There are learnings we can take from the previous Trump presidency and how the next four years could pan out in terms of our trade with the US.
Cast your mind back to 2016
Last time Donald Trump was elected President, Theresa May was Prime Minister and the UK was coming to grips with the referendum decision to leave the EU. I was helping set up the newly created International Trade Department to enable the UK to pursue its own trade policy.
Politically the US administration was supportive of Brexit and keen to take advantage of the chance to strike a trade deal with the UK. Negotiations started in early 2020 under the former Prime Minister Boris Johnson – very late in the US cycle to achieve a deal – but made substantial progress, albeit without resolving any of the toughest issues, such as agriculture or industrial tariffs. Once Joe Biden was elected in November 2020, it was clear that the deal would go no further.
What might happen this time?
For a trade deal to happen, the political stars need to align.
On the UK side, there isn’t the same enthusiasm to show a Brexit dividend and the sensitive issues which threatened to derail a deal before – agriculture and the NHS – have hardly gone away. Indeed, they would be even tougher for this Government.
On the US side, Trump’s rhetoric on tariffs and protectionism has been even stronger and more widely targeted. There would have to be powerful political counterweights to make an exception for a UK trade deal. Frankly, these don’t seem to exist.
So I am – like most commentators – ruling out a substantive trade agreement. This is not to say that there may not be some areas of trade where we may be able to collaborate with the US. For instance, we might expect the Trump administration to take a less negative attitude to freeing up digital trade than the Biden administration, which was focussed on what they saw as the excessive power of the tech companies. This would be an important issue for the UK where so much of our trade depends on services.
Trump will be looking for what countries can give the US if he is to relent on his policies of imposing tariffs. Given that almost 70% of our exports to the US in the year to September 2024 were services rather than goods, the UK may be less exposed than many other countries, but for many important manufacturing sectors, tariffs would have a serious impact. When the US imposed tariffs on UK steel and aluminium in Trump’s last Presidency, there were theoretical ways of arguing for waivers on particular products if these were not available in the US, but it was extremely difficult to secure approval.
Areas the US might focus on, in return for any alleviation of tariffs, are UK agreement on common approaches to tariffs on Chinese imports; or other trade related measures, for instance relating to green standards. This could pose dilemmas for the Government, for instance, in relation to the EU.
Ultimately, if President Trump goes ahead with the trade measures he has talked about, the international trade landscape will become more fragmented . For open economies like the UK, the Government will need to focus even more strongly on ensuring that it maintains and, where possible, improves on its terms of trade with the rest of the world, including the EU. The Government will also need to watch out for possible increases in imports if trade patterns are distorted and products are diverted to the UK from the US as a result. One result of the previous Trump tariffs on steel was action by the EU (and UK) to take measures against steel, mostly from China, which could no longer access the US.
In summary, the UK Government will need to identify opportunities where it has common interests with the US, whilst strengthening its trade relations with other partners. However, it must expect the overall trading environment to become more uncertain, at least until the Trump administration has developed its approach beyond the headlines so far, and possibly thereafter.
by John Alty
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