The American president has just imposed 25% tariffs on Mexico and Canada and has doubled Chinese tariffs from 10% to 20%, leading to widespread retaliations from developed countries and the potential to spark a global trade war.

The team at Gifford Cairns have curated a guide to give you an understanding of how this may affect you, your business and in shaping the next four years.

What is a Tariff?

A trade tariff is a tax that a government adds to goods coming into or leaving a country. It makes imported products more expensive, so people are more likely to buy local products instead.

A fixed tariff is a set rate which is applied for the quantity of an item. For example, $10 for every ton of steel imported.

A percentage tariff is charged upon the value of an item. For example, 10% of the value of a ton of steel.

Why Would Trump Use Them?

The aim of these measures is, obviously, to make money for the American economy. Making foreign goods more expensive helps local companies compete. Tariffs also serve a political purpose in providing a countermeasure to unfair trade practices in neighbouring countries. It is also justified for national security purposes.  

What are the Effects on Neighbouring Countries?

• Higher Costs on Imported Goods.
• Higher Costs for Energy and Materials.
• Disruptions to Global Supply Chains.
• Economic Slowdown and Decline.
• Market Volatility.

The financial markets have already reacted negatively to Trump’s tariff announcements, with falling stock prices.

Below is an update on changes to global markets since the recent announcement.

Equity Markets

USA – The S&P 500 fell by 1.2%, erasing all gains since Trump was elected. The Dow Jones Industrial Average dropped 1.6%, and the Nasdaq Composite decreased by 0.4%.

Europe – European markets mirrored the American downturn. Germany’s DAX declined by 3.13%, France’s CAC 40 declined by 2%, and the pan-European STOXX 600 declined by 2.09%.

The UK – The FTSE 100 and FTSE 250 saw reductions of 1.13% and 2.04%, respectively.

Commodity Markets

Oil: Oil prices dropped sharply amid escalating trade tensions. Brent crude oil decreased by 1.73%, reflecting concerns over global demand.

Gold: Spot gold increased by 0.6% to $2,911.88 an ounce, nearing its record high of $2,956.15, reflecting its status as a haven in economic uncertainty.

Which UK Sectors Are Most at Risk?

1. Importers of Goods

Everyday businesses that import standard consumer goods, from clothing retailers to homeware stores, will face higher costs if supply chains are disrupted or if prices rise due to global tariff increases. This could lead to price hikes felt by UK consumers and lower profit margins for small to medium-sized importers.

2. Automotive Industry

The UK exports a significant number of car parts and vehicles to the US. If Trump extends tariffs to European goods, UK car manufacturers could see higher costs and reduced demand.

3. Manufacturing and Heavy Industry

UK businesses that rely on steel, aluminium, and raw materials sourced from North America or China will face price hikes. If the US steel market becomes more isolated, UK manufacturers could struggle with higher import costs.

4. Technology and Electronics

Many UK tech firms depend on electronic components imported from China. Higher tariffs on Chinese goods mean increased costs for UK-based businesses that manufacture or sell consumer electronics, computers, and mobile devices.

5. Agriculture and Food Exports

The tariffs on food products between the US and China could create supply chain issues, indirectly impacting UK food exporters. Any global shifts in food prices due to shortages or increased demand could also affect UK farmers.

Have Tariffs Been Announced for the UK?

No new tariffs have been announced on the UK. Keir Starmer’s recent visit to the White House raised hopes that this will not be imposed on our economy.

“I think we could very well end up with a real trade deal where the tariffs wouldn’t be necessary. We’ll see.” – Donald Trump.

The UK primarily exports banking and consulting services to the US, which are generally not subject to tariffs.

However, the Centre for Inclusive Trade Policy think tank warns that a 20% blanket tariff on UK goods could result in a £22bn decline in exports, with the fishing and mining sectors being the most affected.

To Conclude

Trump’s tariffs may not currently target the UK, but their wider economic impact will be felt across multiple industries. UK businesses must stay vigilant, assess risks, and develop strategies to mitigate potential financial harm. With global trade uncertainties rising, preparation is key to ensuring resilience in an unpredictable economic landscape.