President Donald Trump’s plan to defend the US economy with a wall of tariffs could cost British businesses £2.5 billion per year, analysts have predicted.
Trump has proposed a tariff of 20% on goods coming into the US. He has also proposed 25% tariffs on imports from US neighbours Canada and Mexico and a 60% tariff on goods from China.
Research by Boston Consulting Group (BCG) suggest that the industries that could be hit hardest by the tariffs are aerospace, cars, machinery and pharmaceuticals.
Other research by the Centre for Economics and Business Research, suggests that by the end of his second term, Trump’s tariffs may knock 0.9% off Britain’s GDP.
Concerns about tariffs add yet another potential source of worry for British businesses, which are already struggling with high energy costs. British energy costs are currently higher than they would be in a completely free market thanks to the governments commitment to net zero environmental policies, which began under the Conservatives and have continued under Labour.
The BCG report also suggests that British trade with Canada and Japan will remain as it is.
As Donald Trump attempts to reduce American dependence on cheap Chinese manufacturing, the British government seems to be going all in for it.
Chancellor Rachel Reeves visited China these weekend in an attempt to build business and economic ties. Her trip was condemned by Conservatives, coming as it did when UK government borrowing costs climbed sharply on the markets.
Over-reliance on Chinese manufacturing is not the only concern when it comes to dealing with the communist nation. China has been accused of significant human rights violations in its own country and of various acts of political and technological espionage.
The country is also accused of reneging on its agreement to respect the rights and political culture of the people of Hong Kong, following the handover of the territory in 1997.
Tariffs can have the effect of protecting local business from foreign competition and can harm the short-term prospects of the exporting country. However, what then happens is the exporting country simply finds new markets for its goods and/or retools its existing economy.
When Great Britain was blockaded by Napoleonic Europe in the early 19th century it simply redirected trade to the rest of the world and helped create a thriving black market in British goods. Similarly, international sanctions on Russia have led it to redirect its sales of energy to countries like India and China.
