Britain’s economy faced significant challenges in April, primarily influenced by Donald Trump’s trade war. The UK’s Gross Domestic Product (GDP) shrunk by an estimated 0. In fact, Rachel Reeves, Britain’s newly elected finance minister, referred to April as a “difficult month.” She made an important point about how external economic headwinds have dented the country’s overall trade performance.
The UK’s overall trade position will come under more strain in the medium term. This is primarily because of the volatile tariffs imposed by the Trump administration. According to Yael Selfin, chief economist at KPMG UK, “This is expected to act as a headwind for UK trade in the medium term.” Uncertainty and confusion over tariff policies is causing deep concern among businesses and consumers alike in the UK. This state of confusion is leading to a chilling of economic activity.
The effect on UK goods exports to the US has been severe. In April, these exports collapsed by an unprecedented £2 billion ($2.7 billion) from March. That’s the biggest drop ever recorded since the series began in 1997. The Office for National Statistics indicated that this fall was “likely linked to the implementation of tariffs” on Britain’s exports bound for the US.
On April 2, 2018, Donald Trump declared a trade war on America’s trading partners by announcing new tariffs. This involves a start 10% goods exported to US as a baseline. Even the announcement of these tariffs caused significant shockwaves. This uncertainty shifted trade flows, despite the fact that implementation was delayed until early July.
In hindsight, by this time, the UK was in a marginally better position having already established a basic framework for a trade deal with the US. This framework was intended to reduce tariffs on UK car exports. The UK was the first country to negotiate such an agreement with the US. This policy shift provides UK businesses with a degree of policy certainty.
Reeves expressed concern over the broader implications of tariff-related uncertainty, stating, “There was a huge uncertainty about tariffs… If you dig into those GDP numbers today, (we see) exports weakening and production weakening because of that uncertainty in the world around tariffs.”
Yet as Britain frets over these economic prognostications, we still haven’t begun to feel the full impact of Trump’s trade war. The double whammy of falling exports and increasing fears over new international trade relationships is a potentially toxic cocktail for the UK economy.