Key Takeaways:
- The US will impose a 10% tariff on all exports from the UK and seven other European countries starting next month, unless a deal is reached for the complete and total purchase of Greenland.
- The UK’s car industry, which is the country’s second biggest export to the US, may be subject to an additional 10% tariff, but it is currently unclear.
- Steel and pharmaceutical exports may be excluded from the additional tariff due to specific terms and agreements.
- The impact of the new tariffs may be less than anticipated, as the affected sectors make up less than half of the UK’s total exports.
- The UK government is trying to persuade Trump to delay the imposition of the new tariffs and is watching a Supreme Court ruling on the legality of the "liberation day" tariffs.
Introduction to the Tariff Threat
President Trump’s sudden threat to impose tariffs on all exports from the UK and seven other European countries has left Downing Street scrambling to get further information from the White House. The move, which is part of Trump’s so-called liberation day tariffs, would see a 10% tariff imposed on most UK exports, with the exceptions of cars, steel, aluminium, and pharmaceuticals. The assumption is that Trump plans to impose an additional 10% tariff rate, taking the total rate to 20%, but this has not been confirmed by the White House.
The Trade Deal and Its Implications
The trade deal announced in the White House last May did not amount to a fully fledged trade deal and is not binding on either side. While some elements of the deal have come into effect, there is nothing to stop either side from walking away from it or imposing additional tariffs. In fact, there are signs that the trade deal is already in trouble, with the US threatening to delay the planned Technology Prosperity Deal due to frustration with slow progress on broader trade issues. The US is also demanding further concessions from Britain to accept American standards and regulations in areas such as food and manufacturing, which has been a red line for the UK.
Impact on the Car Industry
The UK’s car industry, which is the country’s second biggest export to the US, may be subject to an additional 10% tariff. However, it is currently unclear whether the 100,000 vehicles that are currently exempt from the 27.5% tariff will be subject to the additional tariff or whether they will be excluded. The industry is waiting with bated breath for clarification on this issue, as it could have a significant impact on the competitiveness of UK cars in the American market.
Steel and Pharmaceutical Exports
US tariffs on steel imports were imposed on national security grounds, and the UK currently pays a 25% import tax, giving it a competitive advantage over other countries. It is unclear whether the additional 10% tariff will apply to steel, but the industry is hopeful that it could be excluded due to the specific terms on which the tariffs were imposed. The same is true of pharmaceuticals, which were exempt from tariffs under a deal agreed last month. However, it is possible that Trump could renege on this deal, which could have significant implications for the UK’s pharmaceutical industry.
Certainty of the Threat
Nothing is certain when it comes to Trump’s threats, and senior government figures say that the president has a track record of making threats that he does not always carry out. The current strategy in Downing Street is to persuade Trump to at least delay the imposition of the new tariffs so that negotiations on the future of Greenland can continue behind closed doors. Ministers are also watching a Supreme Court ruling expected in the coming days on whether Trump exceeded his powers when he instigated his "liberation day" tariffs.
Retaliatory Tariffs
The UK government is trying to play down the risk of retaliatory tariffs, with Sir Keir Starmer suggesting that a trade war is in no-one’s interests, especially during a cost of living crisis. However, President Macron has already called on the EU to revive a plan to levy tariffs on €93 billion of US goods, which was suspended after last summer’s trade deal. If the EU were to impose retaliatory tariffs on Trump and Starmer failed to act, it could be seen as a sign of the government’s weakness and put the prime minister under pressure from elements of his own party who are already uncomfortable with his attempts to keep Trump onside. Downing Street has been keen to stress that Starmer is not ruling out retaliatory tariffs, and the situation remains uncertain.