The Trump Effect on the UK and the EU
An amazing political comeback by ex-President Donald Trump will see him re-enter the White House on Monday 20th January 2025, and if he sticks to his promise that he will impose tariffs on many of the imports into the United States, the cost estimate by experts to the United Kingdom will be billions of pounds. The fact that Labour sent key electioneering staff to help the Democratic campaign, and Foreign Secretary Lammy’s tirade against President elect Trump, calling him “Neo Nazi Sociopath”, may well impact on future trade negotiations.
Figures released by analysts suggest that the United Kingdom could be hit to the tune of £20 Billion should President elect Trump impose tariffs of 10 to 20% on the United Kingdom’s exports to the United States. After the European Union, the United States is Britain’s largest trading partner and, up to the year ending 30th June 2024, the UK delivered exports to the United States to the value of GBP188.2 Billion. The hardest sector to be hit by tariffs will be pharmaceuticals and medical goods (largest export sector to the United States), followed by the automobile sector (cars and parts) and aviation parts such as jet engines. It must also be remembered that the whisky producers in Scotland are highly dependent on their exports to the United States.
If tariffs are introduced, figures released by the Centre for Economics and Business Research, suggest Britain’s economic output could be trimmed by just under 1% by the end of his presidency in 2023. Furthermore, figures released show a GDP growth in Q3 in the United Kingdom slowing to circa 0.1% and further headwinds from tariffs could severely impact economic growth. Data released by NIESR (National Institute of Economic and Social Research), show that a trade war between the United States and the United Kingdom could reduce growth in the UK by 0.7% in President elect Trump’s first year and 0.5% in his second year.
If GDP does fall in line with the above estimates from the NIESR this will make life difficult for Chancellor Reeves to meet her “Stability Rule”* which will raise the prospects of further taxation, a policy the current government carries out with great gusto and relish. Furthermore, President elect Trump’s protectionist policies may well according to experts put upward pressure on the cost of borrowing. Experts suggest that under President Trump the impact on bond yields could negatively affect UK borrowing costs, which in turn could dampen activity putting further strain on the UK’s public finances.
* Chancellor’s Stability Rule – The requirement is that the current budget (tax revenues minus day to day spending) be in surplus by 2029/20230.
President elect Trump, in his campaign America First slogan, will continue his threats to pull out of NATO if Europe and Great Britain do not increase their defence spending to 2.5% of GDP, with a rumoured 3% of GDP apparently going to be tabled once he is in the White House. The new Defense Secretary Peter Hegseth is not a big supporter of the Ukraine and has branded NATO members “As a group of self-righteous and impotent nations using America as an emergency number”. The United Kingdom may well have to adjust their defence spending upwards if that’s what it takes to keep the United States supporting Ukraine, otherwise Prime Minister Starmer’s vow to back Ukraine will mean nothing.
Elsewhere, the Labour government is hoping for a more constructive relationship with China. Indeed, Foreign Secretary Lammy, who is notoriously anti-Trump, has already visited China confirming that the new government will have greater cooperation on issues such as trade, A1 and climate. However, it is obvious to all that President elect Trump’s views on China are diametrically opposed to those of Foreign Secretary Lammy and the Labour government. If the United Kingdom are looking to build trade deals with China whilst President elect Trump is looking to hit China with 60% tariffs, it will be interesting to see how far the UK/China labour policy pans out.
On the climate front, the energy secretary David Miliband has announced that Great Britain is on its way to becoming a green energy “superpower”. He has promised there will be billions invested in the United Kingdom’s green energy programmes, and he has lifted a ban on new onshore turbine wind farms and has given his approval on to build a mass of solar energy farms. In the meantime, President elect Trump has moved totally in the opposite direction, and whilst labour is announcing a break from oil and gas, in his first presidency Trump took the United States out of the Paris Agreement (climate agreements) and will more than likely repeal any of the outgoing President’s green policies that did not make it over the line. If the United Kingdom is looking for any help from the United States in their green policies, Mr Miliband has taken a leaf out of Lammy’s book and called the President elect a moron, making it unlikely that they will come to any kind of agreement.
Donald Trump will be inaugurated as President of the United States on Monday 20th January 2025 and from then on the possibility of tariffs becomes a reality for the Labour government. However, there is the potential to avoid tariffs, which according to experts is undesirable for the government and that is a free trade agreement. In his first term as President, Trump pursued this policy much more proactively than the current incumbent of the White House. Such an agreement would make UK exports cheaper than those hit with tariffs, but the big sticking point remains food standards and it will be up to the Labour government to decide what is best for the United Kingdom.
