Could Trump Tariffs Impact UK Exports as Severely as Brexit?

Among the most recent and significant developments is the possibility of new trade tariffs proposed by former US President Donald Trump. These tariffs, reportedly ranging between 10% and 20%, could have a profound impact on UK exports to the United States. The potential scale of this economic shift has drawn comparisons to Brexit’s impact on UK-EU trade relationships, sparking discussions among economists, investors, and policymakers.

This blog examines the potential consequences of these proposed tariffs, their parallels with Brexit's effects, and what it means for the balance between goods and services exports in the UK. For those invested in understanding the ripple effects on global trade and UK markets, this analysis provides key insights.

The Proposed Trump Tariffs and Their Potential Scale

Donald Trump’s proposal to impose generalized tariffs on imports to the US has raised alarms among global trade experts. These tariffs, ranging from 10% to 20%, aim to bolster domestic industries but come at the cost of increased barriers for international trade partners. For the UK, whose exports to the US are a crucial part of its economic fabric, this could spell significant challenges.

The Resolution Foundation has estimated that the impact of these tariffs could rival the scale of Brexit’s non-tariff barriers on UK goods exports to the European Union. Specifically, the foundation notes that the magnitude of these tariffs could mimic Brexit's disruption to trade but confine their effects to the UK's trade relationship with the US. This marks a potential turning point for UK businesses heavily reliant on the American market.

Brexit’s Ripple Effect on UK Exports

To understand the possible implications of Trump’s tariffs, it’s essential to analyze the precedent set by Brexit. Since 2019, UK goods exports have grown at a mere 0.3% annually—far behind the OECD average of 4.2%. Brexit-related customs barriers and non-tariff complications introduced under the Trade and Cooperation Agreement (TCA) have diminished the competitiveness of UK goods in European markets.

Interestingly, UK services exports have painted a brighter picture, growing at 7.5% annually over the same period, outperforming the OECD average of 6.1%. Services now account for 54% of the UK’s total exports. This divergence between goods and services highlights the varying degrees of resilience across sectors in the face of trade disruptions.

How Trump’s Tariffs Could Amplify the Divide

If the proposed tariffs take effect, export industries could experience further bifurcation. Unlike Brexit’s widespread impact across both goods and services, US-imposed tariffs would primarily target goods exports. This could exacerbate the already apparent disparity between goods and services sectors.

Economists at the Resolution Foundation estimate that retaliatory actions between the US and the UK following such tariffs would also focus heavily on goods. Sectors such as automotive, machinery, and manufactured products, which feature prominently in UK-US goods trade, would bear the brunt of this disruption. Meanwhile, the relative insulation of the services sector from tariffs could widen the gap in performance between these two export categories.

Services Exports as a Pillar of Resilience

The services sector has emerged as a key driver of UK export growth in recent years, showing impressive resilience against Brexit-related challenges. Some top-performing areas, such as insurance, pension services, and business services like legal consultancy and R&D, have outpaced their European and American counterparts. Since 2016, UK services exports to markets like Singapore and the US have nearly doubled in value, while exports to India have tripled.

Even under new tariff regimes, the services sector’s unique characteristics—such as its reliance on intellectual property and expertise rather than physical goods—may continue to shield it from the disruptions that have historically plagued goods exports. However, this advantage also underscores the urgency for the UK to actively reduce barriers to its services trade globally and further capitalize on this growth trajectory.

Actionable Strategies for Navigating These Challenges

The current landscape calls for a dual-pronged strategy to mitigate risks and capitalize on opportunities:

1. Reducing Barriers to EU Trade

Despite Brexit, the EU remains the UK’s largest trading partner for goods, accounting for 49% of goods exports. Prioritizing smoother trade relations with EU countries—through the reduction of customs barriers and removing unnecessary trade friction—could provide immediate relief to UK goods exporters.

2. Adopting a Global Perspective

Emily Fry, a senior economist at the Resolution Foundation, emphasizes the importance of a global approach to services trade. Building partnerships with high-growth markets like India and Singapore and leveraging trade agreements with the US and other nations should be a priority. Strategies like establishing subsidiaries in international markets can unlock new opportunities for services trade while minimizing exposure to local barriers.

3. Encouraging Domestic Investment in Key Sectors

The UK government should also invest in initiatives to strengthen key sectors within the domestic economy, such as green manufacturing and technology, which align with global demand trends. Incentivizing innovation and supporting enterprises entering the global market can secure long-term economic resilience.

Opportunities Amidst Change

While potential Trump tariffs present a significant challenge to UK goods exports, they also highlight the need for adaptability and innovation. For private investors and economists, this period of uncertainty provides opportunities to identify resilient sectors and invest strategically. The services sector, with its sustained growth trajectory and ability to adapt to global market needs, remains a promising area of focus.

Meanwhile, for businesses, this could be an opportunity to reevaluate supply chains, explore new markets, and strengthen their positions in global trade. Leveraging government-backed initiatives and trade agreements can provide the necessary support to weather such disruptions.

For policymakers, the divergence between goods and services can no longer be ignored. A balanced approach that prioritizes both the removal of goods export barriers and the global expansion of services can ensure the UK’s economic competitiveness in the years ahead.

Looking Ahead

The potential impact of Trump’s proposed tariffs on the UK is a stark reminder of the dynamic nature of global trade and its implications for businesses of all sizes. While comparisons with Brexit are inevitable, key takeaways suggest that a clear focus on reducing trade barriers, particularly with the EU, and expanding global service offerings can mitigate the risks associated with such policies.

For investors and businesses alike, this is a time to stay informed, adapt to changing market realities, and identify sectors and opportunities that promise growth, even amidst trade uncertainties. By adopting a forward-thinking and resilient mindset, the UK can continue to thrive in an increasingly interconnected global economy.