How Donald Trump's tariffs and a trade war will hit YOU

What is a tariff?

A tariff essentially acts as a tax imposed on products imported from foreign countries. These taxes are paid by the businesses bringing in the goods.

As a result, this typically causes consumer prices to rise because businesses transfer the expense of the tariff onto customers.

Since tariffs increase the price of imported goods, they are employed to provide domestic industries with an edge against overseas rivals.

What has Donald Trump done?

The U.S. President stated that starting tomorrow, every import entering the United States will incur a minimum duty of 10 percent.

But some countries that export lots of goods to the US, such as China , are set to be hit with higher levies from April 9.

Chinese exports were slapped with a 34 per cent ‘reciprocal’ tariff while the EU faced a levy of 20 per cent on its exports to the US.

The tariffs have caused the average effective tariff rate on all U.S. imports to rise sharply to 22 percent from merely 2.5 percent last year, marking a level not observed since 1910.

What is President Trump’s approach?

President Trump has stated that various countries have 'taken advantage' of the United States for many years, and he believes his tariff policies will help 'rebuild American wealth'.

He asserts that increasing the cost of importing items into the United States will lead to more production within the nation itself.

Furthermore, it is anticipated that these measures will generate trillions of dollars, which could be used to fund significant tax reductions.

Trump aide Peter Navarro said the tariffs will raise £4.5 trillion, although a lot of the pain in the form of higher prices is likely to fall on US shoppers and businesses.

How will it affect the UK economy?

While the UK managed to avoid some of the higher tariffs imposed on the likes of China and the EU, it has not escaped unscathed, with all British exports to America facing a 10 per cent levy.

Keir Starmer has cautioned that 'there will be an economic impact... both here and worldwide.' He is correct.

The $80 billion worth of products that the UK exports annually to the US, its largest trade partner, has now increased in cost by $7 billion.

According to the National Institute of Economic and Social Research, the tariffs are projected to decrease the United Kingdom’s economic growth to 0.6 percent this year and nearly bring it to a halt at close to zero percent next year—significantly lower than the 1 percent and 1.9 percent forecasts made just last week by the Office for Budget Responsibility.

The economists at Barclays are particularly pessimistic, cautioning that the UK’s growth could be reduced by 1.5 percentage points this year, which would likely plunge the economy into a recession.

The slowdown will all but wipe out the limited £9.9 billion of fiscal ‘headroom’ Chancellor Rachel Reeves left herself in her Spring Statement – setting the scene for more tax rises or spending cuts (or both) in the Budget this autumn.

The threat of job losses is significant. A tariff rate of 25% on automobiles might result in up to 25,000 positions being eliminated, estimates the Institute for Public Policy Research.

How will this affect UK consumers?

The downturn in global stock markets will deal a severe setback to millions of British savers who have their pensions, Individual Savings Accounts (ISAs), and other investments linked to stocks.

Families might also face increased costs. Government officials are seeking input from businesses regarding potential countermeasures – and whatever response occurs is expected to result in hardships for shoppers.

The costs of U.S. products like Tesla vehicles, Levi’s trousers, Jack Daniel’s whiskey, and Harley-Davidson bikes might increase should the UK impose duties on American merchandise.

Additionally, there is a danger that the broader expense of conducting international business might rise due to disruptions in supply chains, which could compel companies to raise their prices.

A possible benefit in the near future is that British consumers might encounter reduced prices on certain products as nations seek out an alternate market to dodge US tariff implications.

Nevertheless, Britain might impose tariffs on nations like China to prevent them from flooding the market with inexpensive products.

What parts of Britain are most affected?

The West Midlands and East of England account for over 40 percent of the United Kingdom’s exports to the U.S., totaling approximately £25 billion annually.

According to PwC, approximately 21.5 percent of exports sent to the United States originate from the West Midlands, with automobiles accounting for 49 percent of those exports.

Jaguar Land Rover and Aston Martin have their bases in this area. The East of England contributes 19.6 percent of exports to the United States, with medicines and pharmaceuticals making up 30 percent of these exports.

How does this impact the worldwide economy?

The longer-term impact will depend on whether this escalates into a trade war and for how long.

This raises the spectre of stagflation – a combination of high inflation and weak economic growth.

Ric Deverell, chief economist at Australian investment bank Macquarie, describes it as ‘the biggest trade shock in history’.

And a report by Aston University suggests it could wipe £1trillion off the global economy, fuelling fears that many countries will suffer recessions.

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