Trump's £20bn blow could 'knock out' the UK economy

President-elect Donald Trump could wipe out nearly 1% of the size of the UK economy if he puts pen to paper on imposing tariffs on all imports into the world's largest economy, as he planned before the election.

A second term for Mr Trump could pose significant challenges for Prime Minister Keir Starmer and the UK economy. (Source: The Times)

The Times commented that Donald Trump's second term poses significant challenges to the UK and the special relationship in many areas - of which the economy, defense and political relations are the most important areas.

Economists at the Centre for Economics and Business Research (CEBR) have warned that the president-elect’s plan to impose 20% tariffs on all imports and raise tariffs to 60% on Chinese goods could, without retaliation, reduce UK GDP by 0.9% by the end of Mr Trump’s second term. This is equivalent to a loss of around £20bn, based on 2023 figures for the size of the UK economy.

Meanwhile, estimates from the National Institute of Economic and Social Research (NIESR) suggest that a 10% tax could cut UK economic growth by 0.7 percentage points.

The CEBR report assessed that the most obvious way to avoid a blow from the US would be to agree a bilateral free trade deal, but acknowledged that there were still many hurdles to overcome to ensure such a deal became a reality.

“Unfortunately, the main sticking points for a US-UK trade deal remain issues around food standards and tariffs – which could be used to pressure the UK into accepting US demands on tariffs,” the CEBR said.

As a result, there are growing concerns about the impact of Mr Trump's tariff plans on the UK economy and its impact on inflation.

In recent weeks, financial markets have also lowered expectations of UK interest rate cuts following Mr Trump’s victory and recent budget measures – both seen as having inflationary implications.

Politico noted that Mr. Trump's return to the White House in January 2025 is causing concern for businesses across the Atlantic. Marco Forgione, director of the Royal Institute of Export and International Trade, said: "Mr. Trump has made it very clear that America must come first. He wants to promote investment in the US and bring back as much manufacturing as possible."

This shows that UK manufacturers cannot afford to be complacent about the good relationship that Mr Trump has shown.

Mr Trump's policy, although not directly aimed at British exporters, is one of the biggest threats among the "trade weapons" at his disposal, a flat tariff of 10-20% on all imports into the US.

Economists also warn that, as the US is the UK's largest export market for goods, the impact on the UK economy would be severe.

The prospect of import tariffs would “send alarm bells” to British businesses, said Harrison Griffiths, director of international programs at the Institute of Economic Affairs. The UK exported £58.3 billion ($75 billion) worth of goods to the US in the year to August 2024. Industries such as automotive, aerospace and pharmaceuticals would be hardest hit.

However, the CEBR report points out that there could be “opportunities” for the UK economy from Mr Trump’s policy plans. Analysts say London could “consolidate its position as a leader in green technology, taking advantage of the global shift towards clean energy investment and the potential for the sector to be given less priority by the Trump administration”.

The UK economy faces a critical period in acting on its growth agenda and positioning itself as a competitive investment destination, says economist Sara Pineros. While US tariffs and rising protectionism pose challenges, other proposals under the incoming administration could provide opportunities for the UK to adapt and thrive.

“Without reinforcing its approach, the UK risks suffering all the pain associated with a Trump presidency without realising the potential benefits,” said economist Pineros.

In addition, speaking about the British government's response, Finance Minister Rachel Reeves downplayed fears of an impending trade war with the US. She affirmed that the UK still maintains a strong economic relationship with the US and will continue to support free trade. However, she also stressed that London will not sit idly by if Washington imposes tariffs.

“We will not be just a passive actor in this. We will make strong statements about the importance of free trade,” said Secretary Rachel Reeves.

Source: https://baoquocte.vn/don-20-ty-bang-cua-ong-trump-co-the-danh-knock-out-nen-kinh-te-anh-294395.html