On Wednesday night, Donald Trump announced a sweeping range of tariff measures on foreign imports in what he called America’s ‘declaration of economic independence’.
The levies are expected to hit the UK and other countries that sell into the US, although some will feel the pain more than others.
What is a tariff?
A tariff is effectively a tax on goods coming into a country from abroad. They are paid by the company importing the items to the government.
Tariffs are usually set at a percentage of the value of the imported goods. For example, a 10 per cent tariff on a car worth £30,000 would make it £33,000.
This normally has the effect of making the goods more expensive for consumers as companies tend to pass on the cost of the tariff to their customers.
Because of their effect of pushing up the cost of imports, tariffs are used to give home-grown industries an advantage over their foreign competitors that attempt to enter the market.
What has Trump done?
In an announcement on Wednesday, Trump revealed that all imports into the US from abroad will be subject to a minimum tariff of 10 per cent from April 5.
But some countries that export lots of goods to the US such as China are set to be hit with higher levies from April 9.
Chinese exports were slapped with a 34 per cent ‘reciprocal’ tariff by Trump while the European Union faced a levy of 20 per cent on its exports to the US.
The UK has managed to avoid the worst of the measures, with its exports subject to the minimum tariff of 10 per cent.
The new levies mean the effective tariff rate for all US imports has surged to 22 per cent from just 2.5 per cent last year, according to rating agency Fitch, levels not seen since 1910.
Analysts at Australian investment bank Macquarie predicted the next 12 months would see ‘the largest increase in tariffs recorded in 200 years’ across the global economy.
Trump’s aide Peter Navarro said the tariffs will raise £4.5trillion for the US coffers, although a lot of the pain is likely to fall on American shoppers and businesses.
What is Trump’s strategy?
Trump has said other nations have ‘ripped off’ the country for decades and that the tariff measures are designed to ‘make America wealthy again’.
He has claimed that making it more expensive to import goods into America will force companies to make more of their products inside the country. A US government official said the levies would ‘restore American greatness and prosperity for everyday American workers in their communities’.
White House staff have also said the tariffs are designed to end ‘unfair trade practices’ between the US and other countries, with Trump having repeatedly aimed to reduce America’s trade deficit.
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Consumer favourites like Levi’s jeans, Jack Daniel’s whiskey and Harley Davidson motorcycles may all see their prices rise in the UK
Additionally, it is hoped that the measures will raise trillions of dollars that will then be used to help pay for deep tax cuts.
This goal was alluded to by Trump on Wednesday when he bemoaned the introduction of the US federal income tax in 1913, before which he said tariffs were ‘the primary source of revenue to run the government’.
How will this affect global trade?
President Trump has effectively upended 80 years of global economic trade policy – and the consequences will be felt far and wide.
‘Trump’s tariffs carry the risk of destroying the global free trade order the United States itself has spear-headed since the Second World War,’ warns Takahide Kiuchi, executive economist at Nomura Research Institute.
Ric Deverell, chief economist at Australian investment bank Macquarie, describes it as ‘the biggest trade shock in history’ with ‘significant consequences’ for trade and the economy.
In the first instance, the impact will be plain and simple – higher prices. This in turn will hit demand for goods – slowing economies and hitting global trade.
The longer-term impact will depend on whether this escalates into a global trade war and for how long. Major exporters such as China will be forced to look for new markets, while the unravelling of supply chains that kept a lid on prices for years will likely push up inflation, hitting corporate profits and wider living standards.
This raises the spectre of stagflation – a painful combination of high inflation and weak economic growth.
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‘This is how you sabotage the world’s economic engine while claiming to supercharge it,’ says Nigel Green, chief executive of global financial advisory deVere Group.
‘It’s a seismic day for global trade. Trump is blowing up the post-war system that made the US and the world more prosperous, and he’s doing it with reckless confidence.’
What is the impact on the global economy?
The National Institute of Economic and Social Research (NIESR) estimates that the tariffs will shave 2 per cent off global growth over the next five years.
And a report by Aston University suggests it could wipe £1trillion off the global economy – fuelling fears that many countries will suffer recession.
‘This is a game-changer, not only for the US economy but for the global economy,’ warns Olu Sonola, head of US economic research at Fitch Ratings. ‘Many countries will likely end up in a recession. You can throw most forecasts out the door if this tariff rate stays on for an extended period of time.’
Analysis by Macquarie suggests the US economy will be hit particularly hard – but will not be alone in feeling the pain.
‘The tariffs will have significant consequences, with global growth likely to slow considerably and the risk of a US recession increasing,’ says Deverell. ‘Other economies, particularly those in Asia, are also likely to see a significant slowdown from the hit to exports.’
What will the impact be on the UK economy?
While the UK managed to avoid some of the higher tariffs imposed on other US trading partners such as China and the EU, it has not escaped unscathed – with a 10 per cent levy on all British exports to America.
The US is the UK’s largest export market, shipping over £60billion worth of goods to America in 2023, according to ONS data.
Sir Keir Starmer has warned ‘there will be an economic impact from the decisions the US has taken both here and globally’.
He is right. The £60billion of goods the UK sends to the US each year have just become £6billion more expensive. This could hit demand for goods stamped ‘Made in Britain’ in America.
NIESR estimates that Trump’s tariffs will reduce growth in the UK to just 0.6 per cent this year and close to zero next year – well below the 1 per cent and 1.9 per cent pencilled in by the Office for Budget Responsibility little over a week ago.
That is bad news for embattled Chancellor Rachel Reeves.
The economic slowdown will all but wipe out the limited £9.9billion of fiscal ‘headroom’ she left herself in the Spring Statement – setting the scene for more tax hikes or spending cuts (or both) in the Budget this Autumn.
Jobs are also at risk. The tariffs on cars could mean as many as 25,000 jobs are lost, according to the Institute for Public Policy Research.
Stephen Phipson, chief executive of Make UK, describes the tariffs as ‘devastating for UK manufacturing’, adding: ‘Not only will volumes of direct exports to the US decline but it will destroy decades of integrated supply chains connecting the UK with the US through other trading partners.’
Which regions are worst hit?
The West Midlands and East of England produce more than 40 per cent of UK goods exported to the US every year – some £25billion worth.
Some 21.5 per cent of exports to the US come from the West Midlands, with cars making up 49 per cent of that, according to analysis by PwC. Jaguar Land Rover and Aston Martin are both based in the region.
The East of England makes up 19.6 per cent of UK exports to the US with medicine and pharmaceuticals products accounting for 30 per cent of sales.
Meanwhile, Scotland is responsible for an eighth of exports to the US and the Scotch whisky industry employs 41,000 north of the border.
What will the impact be on UK consumers?
While the Government has said so far that it will not respond to the latest barrage of US tariffs, any reaction will cause pain for consumers.
Prices of items such as Levi’s jeans, Jack Daniel’s and Jim Beam bourbon, and Harley-Davidson motorcycles could all increase if the UK imposes retaliatory tariffs on US goods.
There is also the risk that the more general cost of doing business around the world will increase as supply chains are disrupted, meaning many firms could be forced to put up prices for consumers to offset the impact on their bottom line.
One potential upside is that British shoppers could see lower prices for some goods as countries turn to the UK as an alternative destination for their wares to avoid being stung by American tariffs.
What will be the impact on UK firms?
British firms at the sharp end of the tariff barrage include the UK’s car industry as well as pharmaceuticals and chemical companies.
Car manufacturers face an even harsher rate than the blanket 10 per cent rate, with Trump having imposed a 25 per cent tariff on all foreign car imports into the US.
Around £8.5billion worth of vehicles were exported to the US from Britain in 2023 alongside £8.8billion of medical and pharma products.
Also in the firing line are engineering and defence companies such as BAE Systems and Rolls-Royce, both of which make a large chunk of their money in the US.
Rolls-Royce brought in around £5.5billion from the US last year, around a third of its total sales, while BAE sales to America were worth £12.5billion in 2024.
Shevaun Haviland, director general of the British Chambers of Commerce, noted that American firms had £700billion worth of investment tied up in Britain compared to £500billion in the US from UK businesses.
‘No one will escape the fallout from these decisions, there will be an increased risk of trade diversion, and it will wreak havoc on business communities across the world,’ she said.
There is also a risk that home-grown UK firms could be crushed by an influx of cheaper goods from abroad, potentially costing thousands of jobs.
Barret Kupelian, chief economist at PwC, also highlighted that while UK businesses faced lower tariffs than their rivals in the EU, some of the pain would ‘inevitably spill over’ due to supply chain links and shared markets.