The Trump administration has unveiled a comprehensive plan to impose tariffs on countries engaging in "unfair or harmful acts, policies, or practices." This move marks a significant shift in the United States' trade policy, as the administration intends to levy tariffs not only on trade discrepancies but also on other perceived unfair practices. Announced recently, the plan threatens to impact international trade dynamics, with the UK and European Union potentially facing tariffs of 20% or more.
The decision to impose tariffs is partly based on whether a country maintains a trade surplus with the United States. In a departure from previous strategies, President Trump now advocates for imposing tariffs on a "country-by-country basis," rather than applying a universal tax on all imports. This approach has sparked concerns in the UK, where the inclusion of Value Added Tax (VAT) in tariff calculations raises alarm. Although VAT is a non-discriminatory tax applied uniformly to both domestic and imported goods, its standard rate of 20% in the UK could lead to significant economic repercussions.
Analysts warn that key sectors such as automobiles, pharmaceuticals, and food and drink industries could be "significantly hit" by these measures. The British Chambers of Commerce (BCC) has voiced concerns about the potential impact on these critical areas of the economy. Furthermore, discrepancies in data collection have led both the US and the UK to claim trade surpluses with one another, adding another layer of complexity to the situation.
President Trump's tariff strategy is part of broader efforts to protect American businesses and bolster domestic manufacturing. He has instructed his administration to develop custom "reciprocal tariffs" for each nation, ensuring that levies imposed on American exports are mirrored in tariffs on imports from those countries. However, incorporating VAT into this equation complicates predictions about its impact on UK businesses.
George Saravelos, global head of FX research at Deutsche Bank, estimates that British businesses exporting to the US could face charges of 21% if taxes are based on existing tariffs combined with VAT. Caroline Ramsay, partner and head of international trade at law firm TLT, notes that the situation is "difficult to predict," emphasizing the uncertainty surrounding these new tariff measures.
"does not mean that the USA is going to check what the UK tariff is on paper imports and match that tariff percentage for paper exports to the US from the UK"
— Caroline Ramsay, partner and head of international trade at law firm TLT
William Bain, head of trade policy at the BCC, highlights that while the UK has some level of insulation due to exporting fewer goods to the US compared to other countries, it remains "vital" for UK businesses to understand and prepare for these potential changes in trade policy.
The introduction of these tariffs has sparked widespread concern among analysts and industry leaders. The potential for increased costs on British exports to the US could lead to decreased competitiveness for UK goods in the American market. Furthermore, as both nations grapple with their claims of trade surpluses, the likelihood of reciprocal tariffs only adds complexity to their economic relationship.