Keir Starmer has hinted that he is unlikely to react against Donald Trump’s tariffs, despite No. 10 admitting that the UK will surely experience economic issues as a result.
The Prime Minister is set to confer with his Cabinet on the day of what the US president has termed ‘Liberation Day’βa day when large import levies are expected to be placed on commodities from across the globe.
UK ministers have agreed that Britain will feel the impact of Trumpβs global tariffs, which are scheduled to be revealed on Wednesday. In a time to avoid these taxes, Britain has been aggressively negotiating for an a solution. However, Business Secretary Jonathan Reynolds confirmed earlier today that there will be ‘no exemptions’ at the outset.
βIt might not be possible for any country in the world to be exempt from the initial announcements,β Jonathan Reynolds, the Business Secretary, stated during an interview with the BBC.
Despite this, ministers remain confident about finding a solution in the next weeks, potentially include agreements on taxing internet-based firms.
The Premier acknowledged this morning, “The likelihood is there will be tariffs. Nobody welcomes that.” He emphasized that the government is “working with the sectors most impacted at pace on that.”
While expressing a desire to avoid a trade war, he stated, “Nobody wants to see a trade war but I have to act in the national interests.”
He further clarified that “all options remain on the table,” but highlighted that businesses are seeking “a calm and collected response to this, not a knee-jerk.”
When questioned about whether he had been “played” by Mr. Trump during Sir Keir’s efforts to foster a strong relationship, the Prime Minister responded, “The US is our closest ally. Our defence, our security, our intelligence are bound up in a way that no two other countries are. So it’s obviously in our national interest to have a close working relationship with the US, which we’ve had for decades, and I want to ensure we have for decades to come.”
Although the details of the US tariffs remain hidden, rumours suggest that one of the possibilities under discussion includes a blanket 20% charge on all international goods.
Such wide trade tariffs would have a serious impact on the UK. They would not only affect specific industries like the car industry but also upset the global economy and potentially undermine the Chancellorβs financial flexibility.
HOW DO TARIFFS WORK AND WHO PAYS THEM?
Tariffs are taxes levied to imports from foreign nations, with the duty of payment being on the importer. This results in greater pricing for foreign goods, making them less accessible to U.S. customers.
Former President Trump viewed tariffs as a means to boost domestic production, as products created in the U.S. would not be subject to these charges. Additionally, he saw tariffs as a tool to produce revenue. For example, Trump said that a 25% tariff on foreign autos might earn $100 billion yearly for the U.S.
HOW WILL TRUMPβS TARIFFS AFFECT THE UK?
As a largest global buyers of foreign goods, the U.S. has enormous economic power over other countries. While the UK is less exposed to tariffs compared to nations such as Germany and China, the implications remain severe.
According to the Office for National Statistics (ONS), the U.S. is British top export destination and its second-largest import partner. In 2024, Britain businesses exported Β£58.7 billion worth of goods to the the United States, representing 16.1% of total exports.
AMERICA IS UK’S LARGEST EXPORTMARKET; TOTAL VALUE OF PRODUCTS SHIPPED FROM UK, 2024
Faced with raised tariffs, UK businesses will need to adjust by looking for alternate markets for their products or decreasing their pricing to remain competitiveβboth alternatives creating obstacles. Most organisations will likely adopt a mix of these tactics.
Neither circumstances offers much encouragement for the UK. The Office for Budget Responsibility (OBR) has stated that a global trade war with retaliation tariffs could cut Britainβs GDP peak by 1% in the worst-case scenario.
ECONOMIC OUTLOOK AND TRADE WAR IMPACT
Goldman Sachs has already downgraded its UK growth prediction due to the potential trade war, forecasting a growth rate of 0.8% this yearβdown from a previous projection of 0.9%. Similarly, the prediction for next year has been reduced to 1.2%, reflecting greater burden on British economy.
David Miles, a member of the OBRβs Budget Responsibility Committee, observed that tariffs of 20-25% imposed by the U.S. might βknock out all the headroom the Government currently hasβ if they remain for a period of five years.
FISCAL CHALLENGES FOR RACHEL REEVES
Rachel Reeves confronts a tiny margin of Β£9.9 billion within her budgetary guidelines, leaving her susceptible to the impacts of Trump’s tariffs. Even slight losses could lead her to seek fresh increase in taxes later on in the year.
WHICH INDUSTRIES WOULD BE AFFECTED IN THE UK?
Industries Likely to Keep the The impact of US Tariffs on the UK While tariffs will significantly affect the UK as a whole, particular sectors are projected to have a far sharper impact.
Andrew Goodwin of Oxford Economics said, “The sectoral impacts are potentially much more serious than the macroeconomic impact, the car sector being an obvious example that is relatively reliant on the US markets for demand.”
In 2023, British car companies exported Β£6.4 billion worth of vehicles to the United States, making it the biggest market for UK-made automobiles.
Nearly 20% of British automobiles sold abroad will face the 25% tax imposed by Trump, and experts inside the automotive industry have warned of probable job losses as a result.
POPULAR EUROPEAN VEHICLE MODELS IN THE US HIT WITH TARIFFS
Current price: $45,400
Post-tariff price: $56,750
BMW X5 M
Current price: $128,375
Post-tariff price: $160,469
Current price: $122,095
Post-tariff price: $152,618
Current price: $61,850
Post-tariff price: $77,312
Current price: $81,325
Post-tariff price: $101,656
UK carmakers have mostly focused on exporting high-end, custom-designed automobiles to the US market following Brexit. Renowned brands such as Rolls-Royce, Jaguar, and Aston Martin are among those most exposed to these charges. Beyond the automotive business, the pharmaceutical business also faces considerable dangers.
In 2023, Britain shipped Β£8.8 billion worth of pharmaceutical products, including medications and vaccines, to the US.
HOW WOULD BRITAIN RESPOND?
Behind closed doors, UK ministers and officials have been working rapidly to convince Trump to spare England from the severe effects of the tariffs.
Although they now realise that achieving a deal before Wednesday is not achievable, there remains hope about gaining exclusions after the tariffs are officially announced.
βI do believe UK businesses support our approach, support the calm-headed approach, the desire to engage, to remain at the table while we can potentially secure an agreement,β Reynolds declared on Tuesday. While ministers are holding out hope for a happy conclusion, they are also ready for the worst-case event.
A Downing Street official stated over the weekend that Sir Keir and his team are ready to indicate βsharp teethβ if necessary, implying that the UK would put retaliatory taxes on American products.
BRITISH GOVERNMENT MAINTAINS PRAGMATISM ON TRADE TALKS WITH THE US
Recent events show that the British government is moving toward a cautious approach, as strong hints from the Prime Minister’s spokesman demonstrate their intention to avoid escalating tensions.
A trade war with the United States is viewed as disadvantageous for all parties concerned, as represented in the statement: “A trade war with the US is clearly not in anybody’s interests.”
The spokesman emphasised the government’s dedication to helpful talks with the United States to achieve a trade agreement, ensuring the safeguarding of native industries.
He emphasised the flexibility of choices available, stating: “We continue to have constructive discussions on agreeing a deal with the US, but at the same time, we’ve also been clear that all options are on the table, we obviously reserve our right to respond, to protect our industries. But we want to take a calm and pragmatic approach to this.”
Highlighting the position of British industry, he emphasised the desire for discussion over conflict: “I think British industry has also been clear that they want to see the Government having a dialogue with the United States and that’s what we’re going to continue to do and seek to achieve.”
During his appearances in TV studios, Mr Reynolds stated the probable absence of exclusions in the US’s approach to trade policy, observing changes in their aims: “No exemptions for any country, but added that what the US is trying to achieve has ‘jumped around’.” He clarified that food standards remain a non-negotiable aspect: “Food standards were a ‘red line’ in trade talks.”
While uncertainties encircle the potential of cutting or eliminating the digital services tax for US companies, Mr Reynolds emphasised its importance:”Although a tech tax was an ‘important principle’ there were questions about ‘how we achieve that’.”
He pointed out the brief character of the digital services tax: “Digital services tax, in itself, was a temporary imposition in lieu of a wider international agreement.”
This approach illustrates British interest in achieving stability and balance in international trade discussions.
