The UK is expected to face a fresh wave of tariffs from the United States on Wednesday, with Downing Street indicating that a deal to exempt British goods may not be reached in time. This potential imposition of new tariffs creates uncertainty for British businesses and consumers alike.
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04-05, 2025US President Donald Trump has stated his intention to unveil a series of new tariffs – or import taxes – on April 2nd, in addition to the previously announced 25% tariffs on cars and car parts. These tariffs are intended to protect American manufacturers and jobs, but could also lead to higher prices for consumers.
Over the weekend, Trump suggested these tariffs would impact all countries, not just those with the largest trade deficits with the US. The UK Prime Minister's official spokesperson said that economic agreement talks between the two countries to avoid tariffs were "constructive," but he did not rule out the possibility of retaliatory measures if tariffs were imposed on the UK. The UK is preparing for various possibilities and will prioritize national interests in any agreement.
The spokesperson stated: "On the issue of tariffs, the Prime Minister has been clear that he will always act in the country's best interests, and we have been preparing for various possibilities ahead of President Trump's announcement, and we expect the UK to be affected alongside other countries." He added: "We are having constructive discussions on a UK-US economic prosperity agreement, but we will only sign up to an agreement that delivers economic prosperity for the British people, and we will only act in the country's best interests."
When asked if the government expected to reach a deal to avoid tariffs before Wednesday, the spokesperson said that discussions between the UK and the US "are likely to continue beyond Wednesday." He stated that the UK would take a "calm and pragmatic approach" to any tariffs and believed that "a trade war with the US is in nobody's interests." He added, however: "We don't rule out any response." The UK aims to navigate this situation carefully, seeking a resolution that avoids escalating tensions.
Shadow Conservative Trade Secretary, MP Andrew Griffith, said: "This news could be a hammer blow to British businesses and workers, and to the Prime Minister's own Chancellor, whose creative accounting in the emergency budget failed to include the impact of tariffs." Labour claimed that negotiations with the US were progressing "smoothly." Griffith added, "But if this is what smooth looks like, I dread to think what not smooth looks like. The Prime Minister has so far failed to deliver, and he needs to reboot our US trade deal."
The Liberal Democrats urged the government to retaliate with its own tariffs, as Canada and the EU have already done. The party's leader, Sir Ed Davey, said: "Just asking nicely is clearly not working with Trump, so we must stand with our allies in Canada and Europe to show that we won't be bullied. That means being ready to implement matching tariffs if necessary, including on Elon Musk's Teslas, and urgently negotiating a better trade deal with the EU to show Trump we have other options."
This follows Sir Keir Starmer's phone call with Trump on Sunday, with Downing Street saying the pair had "productive negotiations" on an economic agreement. The government argues that the UK has relatively equitable trading relationships with other partners compared to the US. The independent Office for Budget Responsibility (OBR) has warned that a tit-for-tat trade war would wipe billions of pounds off economic growth and all but eliminate Chancellor Rachel Reeves' headroom against her own self-imposed rules on spending and borrowing. This could lead to further tax increases or spending cuts if she wants to avoid breaching her fiscal rules.
The OBR's latest economic forecasts, released on Wednesday, stated that in the most "severe" scenario, where the UK and other countries retaliate to Trump's tariffs, GDP would be 0.6% lower this year and 1% lower next year than forecast. In an alternative scenario where the UK does not retaliate, the OBR forecasts a smaller hit to growth, with GDP 0.4% lower this year and 0.6% lower next year than expected. The potential economic consequences of a trade war are significant and could impact the UK's financial stability.
It is currently unclear how the UK would retaliate if the tariffs come into effect. Options range from imposing tariffs on sectors particularly important to the US for UK products, to focusing on specific products like Harley Davidson motorcycles. UK car exports are worth around £7.6 billion a year, and the US is the UK's second-largest market for cars after the EU, according to the automotive industry body, the Society of Motor Manufacturers and Traders (SMMT).
Trump's plans are expected to hit British luxury car manufacturers such as Rolls-Royce and Aston Martin. The US President argues that his measures will help American manufacturers and protect jobs, although there are warnings that prices for consumers could rise. During a meeting between the Prime Minister and the President at the White House last month, Trump hinted at "a real trade deal," which could allow the UK to avoid the tariffs he has been threatening other countries with.
The impact of US tariffs on all UK goods is highly uncertain. It depends not only on the size of any tariffs imposed on UK products, but also on the reactions of governments, businesses, and consumers. As the car industry already knows, tariffs are extremely worrying for affected sectors – as an exporter, you hope either some of it can be absorbed by the supply chain, or that your American customers are happy to pay a higher price – or you hit your own profits by cutting prices. Or you may lose sales, tariffs are undoubtedly bad news for exporters on the edge.
But their impact on UK prices is uncertain. If the UK government imposes retaliatory tariffs on US products, then households here could face higher prices. However, if countries like China are disadvantaged by US tariffs, they may try to ship their goods here, pushing prices down. Overall, US tariffs will be bad for UK growth. Without retaliatory tariffs, the UK's official forecasters think UK growth could be 0.6% lower next year – which is unhelpful, but not disastrous. There are many assumptions underlying this scenario.
But as it warns, there is too much uncertainty about the policy itself and how it will filter through.
