The United Kingdom adopted an applied tariff rate of 10% on all goods. This implementation has sent shockwaves through both the importer and exporter community. Some individual components are exempt from this specific tariff. There’s a trap to these exemptions — they are subject to increasing tariffs that could significantly change the trade landscape. Former president Donald Trump made a big splash last week. He even doubled tariffs on steel and aluminum imports, increasing them to an incredible 50%.
The US administration is doing the opposite right now – imposing arbitrary country-specific tariffs and whimsically raising arbitrary product-specific tariffs. This common practice puts American manufacturers and workers on shaky ground. Now, many countries are wondering how stable any trade agreements they would sign with the United States will be. They are worried about its unpredictable trade policy and the tariff hike that continues daily.
The ramifications of these policies have far-reaching implications beyond the borders of each country. Second, the US dollar is undertaking a roller coaster ride, directly caused by the trade policy shifts. As tariffs increase, so will the incentive for other countries to distance themselves from the US. They might identify the growing crisis as a direct threat to their own financial interests.
Michael Pfister, FX analyst at Commerzbank, underscores how dire things have gotten. He notes that the tariffs appear to have been determined randomly. Often they backtrack on past promises or deal terms.
“The EU responded with unusual severity, threatening to impose retaliatory tariffs. The EU had already announced these after the US introduced reciprocal tariffs, but, like Trump, delayed their implementation by 90 days to allow time for negotiations. Following this latest development, the likelihood of a deal with the EU is probably moving lower.” – Michael Pfister
The increasing hostility especially focused on EU products has sounded the alarm bells. More troubling was the threat that at some point he would impose 50% tariffs on all goods imported from Europe. This threat has done nothing but increase anxiety for stakeholders as they pursue opportunity amid the fog created by US trade policy.
As the situation plays out, the world is left wondering if the US administration will reverse its course on a record number of tariff increases. Unpredictability in trade policies is the worst thing. Consequently, other nations are reluctant to make long-term commitments with the United States. As Pfister pointed out, “likelihood of a deal with the EU is moving lower,” reflecting growing skepticism about future negotiations.
The UK’s 10% tariff looks pretty small potatoes when you put it up against Trump’s broad measures. It does underscore an alarming trend toward increased protectionism across international markets. While the exemption for individual components allows for near-term relief for specific sectors, it falls short of addressing the larger and more dynamic supply chain challenges. These exemptions come with their own obstacles exacerbated by increasing tariffs.
Countries around the world are starting to join in on making their displeasure known by retaliating to the highly aggressive and unprovoked US tariff strategy. There are widespread concerns that these policies risk provoking retaliatory actions and eventually breaking up current international production and trade patterns. As countries make these choices, many are exploring a pivot away from US markets entirely, looking for lower-risk trading partners.