The United Kingdom faces economic uncertainty as former U.S. President Donald Trump raises concerns about trade imbalances. In a recent interview with the BBC, Trump criticized the UK, labeling it as “way out of line,” but expressed optimism about resolving the issue. As discussions loom over potential tariffs, the UK’s trade surplus with the U.S., estimated at £71 billion in 2023, hangs in the balance. Meanwhile, the U.S. reported a trade surplus of $14.5 billion with the UK, according to the Bureau of Economic Analysis.
The UK's exports to the U.S. span various sectors, including pharmaceuticals (£8.8 billion), cars (£6.4 billion), and power generation machinery (£6.4 billion). Should the U.S. impose a blanket tariff on UK exports, approximately £60 billion worth of goods sent in 2023 could be affected. This development follows Trump's decision to pause tariffs on Mexico for a month, highlighting his broader strategy of addressing trade imbalances.
Trump has consistently voiced his discontent with perceived unbalanced trade relations, particularly with the European Union (EU). He claims that the EU imports minimal American goods while exporting substantial quantities to the U.S.
"They don't take our cars, they don't take our farm products, they take almost nothing and we take everything from them. Millions of cars, tremendous amounts of food and farm products," said Trump.
The UK government faces additional challenges with borrowing costs potentially slowing economic growth. This situation pressures policymakers to consider cutting spending or increasing taxes. The reluctance of the U.S. Federal Reserve to lower interest rates further complicates matters, potentially resulting in higher borrowing costs in the UK.
The Office for National Statistics (ONS) estimates that the UK's trade surplus with the U.S. stands at around £71 billion in 2023, aligning with Trump's concerns about trade disparities. The implementation of tariffs on Mexico and Canada could trim UK GDP growth by 0.1 percentage points in 2025, as forecasted by the National Institute of Economic and Social Research (NIESR).
Ahmet Kaya highlighted the broader impacts of U.S. tariffs on global supply chains, asserting that even if the UK is not directly targeted, there are indirect economic repercussions.
"The US imposing tariffs on our other trading partners will still have a negative effect on the UK economy through its effect on supply chains and the exchange rate," Kaya stated.
Furthermore, industrial exports might redirect from the U.S., saturating the UK market and influencing financial markets and borrowing costs. UK agencies do not account for trade flows via British crown dependencies, which could skew overall trade figures.
Current trends indicate that U.S. and UK government bond yields are once again moving in unison. This synchronization could influence borrowing costs within the UK economy.
Economist Julian Jessop emphasized that while tariffs might appear to be the immediate threat, there are underlying issues at play.
"The main threat to the UK economy from Trump's tariffs may well be the spillover from higher US interest rates, rather than tariffs themselves," Jessop explained.