Trump tariffs could be good for some countries, including the UK

There are valid reasons for investors to feel uneasy about U.S. President Donald Trump's latest actions. His tariffs imposed on Canada, Mexico, and China effectively reverse globalization by 70 years, undoing decades of progress.

Trump claims that tariffs are a "beautiful word" that herald jobs and wealth for America. However, history demonstrates that those who initiate trade wars often suffer significant repercussions. Despite the President's tough rhetoric, American consumers are on the front lines of this trade war.

These additional tariffs mean that Americans are facing the highest levels of tariffs on imported goods since the 1930s. Vegetables from Mexico, wheat from Canada, and toys and T-shirts from China are all affected. Retailers of these goods typically operate on thin margins and will quickly raise prices to offset the losses from tariffs, and consumers will directly feel the impact of rising prices.

Trump may like the word "groceries," but his voters may not be happy to accept rising bills. Economists predict that, without further tariffs, U.S. inflation (already higher than expected) could rise further in the second half of the year. Is the cost of "Making America Great Again" worth it? The story of washing machines serves as a cautionary tale.

During his first term in 2018, Trump imposed tariffs of up to 50% on imported washing machines after U.S. manufacturer Whirlpool complained about cheap competition from South Korea. Subsequently, competitors like Samsung and LG established factories in the U.S., creating nearly 2,000 jobs. But at what cost? Before the tariffs were removed, in early 2023, American consumers paid nearly a third more for an imported washing machine than they did five years earlier. One study showed that adding up the cost of tariffs, each job was equivalent to Americans spending over $800,000.

Of course, these tariffs bring revenue to the U.S. government and have increased significantly in recent years with a series of tariffs imposed on China during Trump's first term (most of which have been retained by President Biden). However, the net revenue equates to a tax increase of up to $300 for American families. Ultimately, they bear the cost and will continue to do so.

Consider also the impact on American manufacturers who have operations in the U.S., Canada, Mexico, and even China. Overall, economists believe we could see U.S. economic growth take a hit of up to 1%—not enough to trigger a recession, but still unwelcome. In absolute numbers, the Canadian economy may be hit even harder. It sells over $400 billion worth of goods to the U.S. each year, accounting for a fifth of its income. But it has the ability to lower interest rates and has healthy public finances, giving policymakers room to cushion the pain for Canadian citizens.

The damage to Mexico's national income may be less, but its central bank has a weaker ability to lower interest rates, making it harder to alleviate the pain. All of this will be closely watched by the EU, which is likely to be the next target of Trump's tariffs. Germany's economic situation is already fragile, and it accounts for about a third of the EU's sales of goods to the U.S.

Despite being the target of Trump's repeated trade strikes, China may actually be less vulnerable. Its exports to the U.S. account for less than 3% of its national income—easily made up for elsewhere. Ironically, this resilience is partly due to the tariffs imposed by President Trump last time. China simply found new markets.

Countries like the UK may also benefit from the further development of this trade diversion, gaining access to more and cheaper goods—which could lower our own inflation rate. A key point about trade wars is that there are both winners and losers—especially for those countries not in President Trump's firing line. For example, Vietnam and Malaysia saw rapid export growth during President Trump's tenure, as they replaced China in selling goods to the U.S.

If the UK continues to escape President Trump's wrath, we may actually benefit from closer trade ties with his country, and we may actually benefit from greater foreign investment if we look like a more certain environment compared to some of our competitors. But of course, our fate remains uncertain.

As it stands, the outlook for global economic growth in 2025 is already bleak, but a recession seems unlikely. However, in Trump's world, we have quickly learned to expect the unexpected—so much still depends on what happens next. This uncertainty itself is damaging business confidence in the U.S. and around the world, delaying key decisions about where to invest and create jobs. Weaponizing uncertainty also comes at a cost—even at home.