Impacts of Trump’s Trade Policies on UK-US Relations: Key Insights and Future Risks

Four years ago, Liz Truss, then UK trade secretary, brought British gin to her US counterpart amid transatlantic trade tensions. At that time, the UK faced a 25% tariff on distilled spirits due to trade conflicts initiated by Donald Trump, who was in office.

In his recent campaign, Trump threatened tariffs of up to 20% on all US imports and higher tariffs on goods from China and Mexico. His trade adviser, Stephen Moore, stated that Britain’s shift towards European trade practices could hinder a US-UK free trade deal.

The US is the UK’s largest trade partner, with a relationship worth over £300 billion annually. This includes a significant amount of trade in services, which is primarily business-related, alongside important goods such as medicines and cars. Notably, the UK reports a trade surplus with the US.

What’s at stake?

Tariffs are taxes on imports that protect local producers by making foreign goods more expensive. However, these taxes typically increase costs for consumers as importers pass on expenses.

Last time Trump held office, he initially used the threat of tariffs but later scaled back. His administration imposed tariffs on the EU, affecting goods like cashmere and Scotch whisky. Although concerns were high, UK exports to the US actually grew significantly during this period.

What could happen this time?

Economists now warn that the impact of Trump’s return could be greater. A full-scale implementation of his proposed tariffs could boost US tariffs significantly, which may lead to inflation and a slowdown in global trade.

Analysts expect that Trump may focus his trade policies primarily on China, which could mean UK exporters might not face severe tariffs. Still, uncertainty could freeze business investment as companies wait for clearer policies.

Will the UK move closer to the EU?

Keir Starmer, the UK’s opposition leader, faces pressure to establish a clear stance on US trade while also wanting to improve relations with Europe. The Bank of England warns that Brexit has strained the UK economy and calls for rebuilding ties with the EU.

If the UK engages in trade talks with the US, the demands may challenge its existing relationship with the EU, particularly regarding food standards. Some experts doubt Trump’s interest in prioritizing a trade deal with the UK, suggesting that the previous imbalance during their negotiations still exists.