The Centre for Inclusive Trade Policy (CITP) has warned that a blanket ban of 20% on all goods going into the US could see the UK’s exports drop by £22bn (0.8% of GDP).
“There is a lot of concern on the trade front,” John Alty, senior advisor on trade for Pagefield, told Food Manufacture.
Alty, who previously served as the permanent secretary at the Department for International Trade, explained that whilst the EU is one of the biggest trading partners of the UK, the US is our largest single export market (as a country), with total trade accounting for more than £300bn.
That’s a significant amount...so what kind of impact will tariffs have on UK market?
Why is Trump keen on tariffs?
Let’s start off by looking at why Trump wants to introduce tariffs in the first place.
Alty described the president elect’s approach as “unconventional economics”, with Trump using tariffs as a way to level the playing field and as a bargaining chip.
“He thinks the US is being treated unfairly. In fact, one of his earlier proposals, which may or may not be still on the table is what he called the Reciprocal Trade Act. In that proposal, he said we [the US] should charge the same tariffs on other countries’ exports as they charge on US exports.
“He’s particularly focused on China because the US has got a very big trade deficit with them and he thinks the Chinese are subsidising their industries unfairly.
“He also knows that this is going to create concern amongst exporters and so it gives him some leverage. Then it’s a question of what is the negotiation, what do Americans want?”
How will tariffs impact the US and UK?
It’s difficult to predict what will happen, although it’s unlikely the outcome will be beneficial for the UK, or the US for that matter. In fact, according to think tank Resolution Foundation, proposed tariffs could cost US consumers about $2,000 (£1,500) per capita.
While Trump maintains that such taxes won’t hit Americans’ pockets, most economists would disagree.
“Trump has made lots of positive comments about how wonderful tariffs are; but actually, tariffs aren’t particularly helpful for your own economy, never mind the exporter,” said Alty.
Generally speaking, when tariffs are imposed, the companies exporting them can’t absorb the cost, so they hike up their own prices which subsequently trickles down to the consumer. Alternatively, industries become less competitive and jobs are then lost.
Whilst a 20% tariff on all imports into the US is one scenario for the UK, experts believe that Trump is using this as a way to negotiate a trade deal or gain special arrangements with Britain and other nations.
“I’m sure there’ll be some people in the US who are thinking, ‘if we can get a deal that works, it’ll be good for both sides’,” Alty said.
A UK-US trade deal had been on the cards in Trump’s first presidency and while it would avoid extra taxes and could remove certain other barriers for the UK, it’s also highly controversial.
At the time, the food sector and NGOs had expressed particular concerns over food standards and animal welfare, as well as unfair competition coming into the UK.
These concerns were aired again in a recent food security debate in parliament by Plaid Cymru MP Ann Davies.
“The Chancellor is hailing the benefits of free trade in a plea to Donald Trump,” said Davies. “However, any future trade deal with the United States will enable cheap food, such as hormone-treated beef, to flood our markets, which would be devastating for farmers and food security. Will the Secretary of State take this opportunity to rule out any trade deal that undermines our British farmers?”
Daniel Zeichner, minister of state at the Department for Environment, Food and Rural Affairs responded: “We have always been very clear that we will do nothing in trade deals that would undermine this country’s important standards.”
Alty believes it’s unlikely that we’ll see a deal agreed under a Labour government, especially given its goals to reset the UK’s relationship with the EU.
Should a trade deal with the UK be agreed, Alty said we could expect the EU to maintain tough checks on UK food products coming into the region to ensure their food standards are not undermined.
Moreover, other regimes which the EU has brought in, including a tax on high carbon products, are likely to be mimicked by the UK but not the US. It would then place the UK in a precarious position, balancing the requests of the EU and US which are likely to clash.
“US asks may start causing some problems, particularly if we want to get closer to the EU,” Alty said.
Therefore, it’s more likely that the US-UK will strike up more limited agreements rather than an overall trade deal. But, again, such requests may make trade with other regions more difficult.
“There is a prospect of avoiding tariffs for the UK, but I don’t think it’s going to come without strings,” Alty said.
He gives one example: “One thing the US might ask the UK to do is impose tariffs on Chinese electric vehicles like the ones in the US. Now if the UK did that, we could expect the Chinese to retaliate - I wouldn’t be surprised if they put tariffs on Scotch going into China.”
The global impact on trade
While the UK may escape blanket tariffs by striking up a deal, the impact of tariffs on other countries will still ricochet across the globe.
“Global growth will go down by an estimated 0.8%, and everyone will be a bit worse off,” predicted Alty.
For places where tariffs are really high, we are likely to see products priced out of the market. If China has a 60% tax imposed (possibly more if BRICS nations, including China, move away from the dollar), then they would have two options.
One would be to increase the price on consumers buying their products in the US to avoid absorbing the cost. The other would be to sell more products into the UK – whilst the UK consumer would benefit from cheaper goods and services, UK businesses would struggle to compete.
“One of the interesting things will be to see whether he does differentiate between any of these blocs,” continued Alty, adding that it would be “a mistake” to think that the UK’s special relationship with the US would make it exempt from everything that’s happening.
