‘Tariff
man’ Trump puts Britain in firing line of new global trade war
Donald
Trump’s US election campaign threat to impose 10% levies on US trading partners
could hurt the UK economy
Richard
Partington
Richard
Partington Economics correspondent
Sat 9 Nov
2024 15.00 GMT
Outside the
US embassy in London, a steady line of visitors arrive for visa appointments.
On the windswept south bank of the Thames, the fortress-like building is not
the most welcoming proposition: it stands isolated, a cold glass cube hemmed in
by a medieval-style moat.
Inside,
after Donald Trump’s election victory last week, the atmosphere was not much
warmer. Having flown in to promote US trade links with Britain, the governor of
New Jersey, Phil Murphy, knew his job had just got a lot harder.
“It is the
elephant in the room. As a Democrat, it was a very sober day on Tuesday,” said
Murphy, one of the party’s most senior figures, speaking to a small group of
journalists at the embassy on Friday. What had been a mission to promote his
state’s economic ties had become an exercise in damage limitation.
“We planned
this trip knowing we were coming right in after the election and knowing it was
a possibility that President Trump could win. But there are sub-national
relations. We’re big believers in that. We believe with great passion that
those relations can be strengthened. We start in a good place here.”
Trump’s
victory has raised the prospect of a renewed global trade war on a much bigger
scale than in his first term, when his clashes with China rippled through world
trade and weighed on growth across advanced economies.
On the
campaign trail, the president-elect, who has described himself as a “tariff
man”, threatened levies of 10% on all goods imports from US trading partners,
and up to 60% and 100% for China and Mexico.
As an open
trading economy, the UK could be in the firing line. Britain’s trade
relationship with the US, its single largest trading partner, is worth more
than £300bn a year, at a time when links with the EU are still boxed in by
Brexit.
Experts warn
sales of cars, Rolls-Royce aero engines, whisky and medicines could be at risk,
but say Britain could be more immune than other countries because the bulk of
its exports to the US are in services, which are unlikely to be covered by the
tariffs.
Ashley Webb
at the consultancy Capital Economics said that the overall effect on UK gross
domestic product from tariffs on US imports from Britain could be “negligible”,
but warned that retaliation and a hit to the global economy would have worse
consequences.
Last time,
however, the fallout was still considerable and Britain was not immune. Trump’s
previous trade war with China weighed heavily on global growth, hitting the UK
economy, including through higher uncertainty and reduced confidence affecting
business investment.
The National
Institute of Economic and Social Research has said Trump’s measures could halve
UK growth and drive up prices for consumers. Andrew Bailey, the governor of the
Bank of England, said last week that Threadneedle Street would be watching the
situation closely.
The US
embassy in London – a building derided by Trump as “off location” and “lousy”
when he snubbed its 2018 opening ceremony – will become a flashpoint in the
coming years.
Murphy said
tariffs were the top concern in his meetings in Britain, which included
visiting companies in London and Cambridge, dining with Jonathan Reynolds, the
business secretary, and watching Crystal Palace play Fulham in the Premier
League.
Pointing out
that the UK was New Jersey’s second-largest economic partner globally, with
$9.6bn (£7.4bn) in trade, he said holding on to that would be important even as
the US turned inward.
However, he
questioned whether Trump would carry through his campaign trail threats after
winning the White House. “I’m sure you’re concerned about tariffs [and] the
bilateral relationship. If I were to speculate, there is a lane for the UK and
less of a lane for the EU and Nato.”
Trump could
take a favourable view of the UK because he supports Britain’s withdrawal from
the EU. “Brexit and Trump each were born in the same year. I can’t speak for
the president, but I think there’s an embedded sympathy for somebody who leaves
a bureaucracy, a club if you will.”
But with
Labour in power, raising questions over the strength of US-UK ties, Keir
Starmer is under pressure to build closer trade links with the EU instead. “I
think you can have both,” said Murphy, who described Brexit as an “awful
decision”.
“Anything
the UK can do to get into a better lane with the EU, I think is a smart move,
without giving up obviously its self-interest and principles.”
Although
portraits of Joe Biden and Kamala Harris still hang in the entrance to the
London embassy, what a Democrat thinks about Trump’s likely policy direction
may be of little significance.
However, as
a senior politician who fought New Jersey’s corner when Trump was last
president and also served as Barack Obama’s ambassador to Germany, he has
experience – and is not alone in this view.
Investors
are also betting that Trump will not follow through with his full tariff
policy, a belief reflected in a relatively muted financial market reaction to
the risk.
Mark
Dowding, chief investment officer at asset manager BlueBay, said: “We expect
early action on China. However, a more wide-ranging global tariff could be used
as more of a negotiating ploy with other US trading partners.
“There will
certainly be tariffs on some goods in some sectors. Yet the US is keen to keep
Europe onside in terms of its position relative to China and it will also want
to avert a trade war, which could add to costs and hurt consumers.”
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