Trump tariffs – How will they impact global trade and UK businesses?

Donald Trump’s return to the White House reignited discussion about the potential impacts of his trade policies on the global economy and more specifically, global trade.

His first term was defined by a new era of US trade policy, featuring the threat and imposition of tariffs, sanctions, and other measures to try and rebalance America’s trade deficits. As the second Trump administration rolls out its priorities, one thing is clear, tariffs are a high priority and will have wide reaching repercussions.

From a purely economic point of view, the aim of the additional tariffs on imports is to protect domestic production and lessen the overall cost advantage of imported goods. Trump’s aims of implementing such measures have been reported to be a combination of curbing the influx of immigrants and fentanyl supplies across the US’s land borders and punishing countries or trading blocs that the US have trade deficits with (when a country’s imports exceed the value of its exports).

The actual impact of tariffs on the US and global economy depends on both how they are implemented and the level of retaliation. 
Whilst targeted tariffs would likely mean that bilateral trade between the US and the countries on which the tariffs are targeted will ultimately decline, actual rebalancing of trade deficits or reshoring of economic activity back to the US would likely be negligible.

Universal tariffs, on the other hand, would likely have a far more wide-ranging impact on both the US and wider global economy. Such measures would undoubtedly have an inflationary impact domestically. There could, however, be a greater level of reshoring of production with such measures, which would prove deflationary outside the US as demand shrinks and goods surpluses emerge.

We believe the ultimate impact will be an increase in the cost of imported goods, leading to higher prices for consumers and increased production costs for manufacturers that rely on imported materials.

Over the weekend of 1st to 2nd February, President Trump announced that he would enforce a levy of 25% on Canadian and Mexican imports, as well as an additional 10% tariff on Chinese goods, due to come into force on Tuesday 4th February.

This was later “put on hold” for 30 days after discussions between President Trump and his counterparts in Mexico and Canada, so this will need careful monitoring over the next month for businesses impacted by potential tariffs.

Canada, Mexico, and the US have deeply integrated economies as a direct result of favourable Free Trade Agreements over the past two decades. Imports from the US’s neighbours accounted for 30% of goods imported into the US in 2023.

Source: United Nations COMTRADE database on international trade, 2023

President Trump has also announced that EU goods imported into the US will have tariffs applied “pretty soon”. As yet, it is unknown whether tariffs will also be applied to UK goods.
The EU exported nearly 20% of its total exports to the US in 2023, according to UN COMTRADE data, making the US the bloc’s second largest trading partner.

How the world responds to the newly imposed tariffs will affect how global trade is impacted. In response to the measures, Canada has announced plans to introduce retaliatory 25% tariffs on US agricultural products, automobiles and consumer goods. Mexico has also announced that it plans to introduce new tariffs on US food products, industrial goods, and automobile exports.

Minutes after Trump’s 10% additional tariff on Chinese goods came into force, China’s Ministry of Commerce announced a 15% tariff on US coal and liquified natural gas products, as well as a 10% tariff on US crude oil, agricultural machinery and large-engine cars, to come into force Monday 10th February.

The European Commission has already stated that it is ready to retaliate again if Trump levies tariffs. During his first term, Trump imposed tariffs of 25% on steel imports and 10 percent on aluminium imports from the EU, sparking a trade war with the trading bloc of 27 countries, which hit back with tariffs on US goods worth around $6 billion, primarily targeting whiskey, motorcycles, and denim.

The US is one of the UK’s largest trading partners, with annual trade exceeding £300 billion. With this comes uncertainty for UK businesses as we await the breadth of the proposed tariffs, especially as the focus remains on economic growth in the UK.

Whilst Trump has not ruled the UK out of tariff measures, there was hope on Sunday in Whitehall that the UK could dodge similar measures to those levied on Mexico, Canada, China and, likely, the EU.

If the favourable attitude the UK benefitted from under the last Trump presidency is anything to go on, and ignoring the possibility of universal tariffs, the UK may be left out of Trump’s barrage of tariffs and may in fact enjoy some key benefits, such as stronger bilateral trade agreements and more favourable terms for UK exports.

Indirectly, tariffs imposed on EU exporters would also benefit UK businesses, as UK products would become more competitive in US markets. However, UK businesses must be mindful to correctly apply the UK rules of origin where the exported goods include components originating in any country that is subject to US tariffs.

There may also be a diversionary impact for UK businesses, with the potential for lower prices from markets where exporters had previously supplied goods to the US, and now hold surpluses. As it stands, EU businesses are set to be hit harder, with tariffs likely to be introduced imminently. EU businesses should monitor the developments as they arise and make plans accordingly.

If any additional tariff measures are imposed universally, UK & EU businesses could be required to make some tough choices, particularly if their business is reliant on trade with the US and, as we are seeing now, businesses should begin preparing for the various eventualities.

Looking ahead, the future of US trade policy remains uncertain, as global trade tensions continue to evolve, and this will no doubt have a far-reaching impact on the wider global trade environment. Industries and businesses that proactively manage and plan for these challenges will be better positioned to navigate the complexities of a tariff-laden global economy.

Evelyn Partners can assist your business to strategically navigate the complexity and challenges that lie ahead by considering:

• Diversifying markets and avoiding an overreliance on tariff-affected markets by exploring new markets with free trade agreements
• Understanding the tax cost/benefit of rerouting supply chains through the diversification of suppliers, relocation of production and streamlining of logistics
• Managing costs by exploring other areas of the supply chain where there are duty optimisation strategies currently being underutilised
• Conducting an origin analysis of goods exported to the US to ensure the correct country of origin is declared to US Customs

If you would like to discuss how the above could impact your business, please do get in touch with your usual contact or the contacts listed.

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