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How exposed is the UK to Trump’s tariff chaos?

April 10, 2025
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Dharshini David

Deputy economics editor

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Warnings of a global recession have been intensifying as the trade war heats up.

As of Wednesday night, the main animus seems to be between the US and China who are flinging ever-increasing tariffs at each other.

For most other nations, Donald Trump has paused implementing higher taxes on US imports for 90 days.

It means that those countries will now face a lower levy of 10% – the same level as Trump imposed on the UK when he made his initial announcement last week.

The UK appeared to have come off lightly compared to other economies.

But, British exporters still face an extra charge on goods sold into the US and there are many other ways the UK will be affected, from growth to inflation.

The exact impact remains very uncertain. But some of the emerging fallout may have an upside – and here’s why.

Business

Those most directly exposed in the UK to this trade war are British businesses – from carmakers to food producers – selling goods into the US.

As American importers buying their products pay 10% more, they face a dilemma of whether to squeeze profits, share the pain across the supply chain or hope customers will be prepared to pay higher prices.

They already risk a dent to their sales from tariffs, threatening jobs and investment plans. Other companies too could be squeezed by more competition, if cheap imports from other nations are diverted to the UK – China makes a third of global goods.

And the complexities of global supply chains means UK business will notice the impact of tariffs in other nations.

Growth

The blow to growth via trade will likely be less marked in the UK than elsewhere, in part because of what Britain sells to America.

Two-thirds of British exports to the US are services – the likes of banking, insurance and advertising – which aren’t subject to tariffs. The UK’s success in this area makes it a particular area of strength in its trade portfolio.

But that strength can also be a weakness.

Some services exports are linked to goods; think after-sales services or marketing. The demand for those could be affected by tariffs in the US.

Sales of services exports could more broadly be impacted elsewhere if demand from other countries suffers.

Some in the advertising industry are already fretting because spending on their services are often the first to suffer when there are budget cutbacks.

And that trade success could be a vulnerability.

The Bank of England notes that the size of the UK’s export sector compared to the economy, and its financial sector, means it may be susceptible to risks to financial stability from weaker global growth.

It’s for all these reasons that Chancellor Rachel Reeves is warning that growth in the UK will be hit, even if we’re now on a level playing field with other countries in terms of the 10% tariff.

That’s worrying, not just for households and businesses, but for the chancellor’s own sums – weaker growth puts more of a strain on the public finances.

That’s why there’s been speculation that we may see more tax rises come the Autumn Budget, if she’s to stick to her fiscal rules.

ISAs and pensions

Compounding that dilemma, potentially, are movements in the bond markets.

Those are usually seen as safe investments in times of strife but there have been signs of heavy selling, which could lead to higher borrowing costs for governments.

And the wild swings in stock markets around the world, egged on by the heightened risk of global recession, have not been good news for investors in the UK.

When share prices drop, they reduce the value of products such as ISAs and pension funds.

But as seasoned analysts caution, those sorts of funds are long-term ones. Swings in the value of investments tend to get smoothed out over time – and most people aren’t drawing from such funds day-to-day. On the whole, households here are less exposed to the stock market directly than those in America are.

Interest rates

There may be a silver lining to the market volatility.

Prices of oil and commodities such as copper and sugar have been falling.

That may bode well for lower inflation, as might the diversion of cheap goods from countries struggling to sell in the US.

Against a backdrop of weaker growth, investors are speculating that the Bank of England may cut interest rates four more times this year, touting potential relief for millions of households.

The Bank of England itself has noted that, in any case, British households are well placed to weather the storm – our debt relative to our incomes is at its lowest level since 2001.

Moreover, the banking system, the Bank judges, is well placed to absorb shocks. Lessons from the 2008 financial crisis have been learnt.

So in a tempestuous world, UK growth is likely to suffer as we get caught in the crosswinds, although there may still be the odd bright spot to look out for.

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