Exports to the US are going to be charged a 10% reciprocal tariff as part of president Trump’s liberation day
In a radical change to the world trade order, the US president has announced sweeping tariffs on US imports, with all foreign made cars slapped with an immediate 25% tariff.
UK exports, excluding cars, will face the default 10% import tariff, which will be imposed on all countries which the president said did not impose punitive tariffs and inflict trade barriers to US imports. The 10% tariff rate comes into effect on Saturday 5 April.
The new tariffs will affect all of the annual £62bn UK exports to the US, dominated by pharmaceuticals, cars and power generators.
In a detailed executive order setting out the new reciprocal tariff regime, the president stated: ‘Trading partners have repeatedly blocked multilateral and plurilateral solutions, including in the context of new rounds of tariff negotiations and efforts to discipline non-tariff barriers.
‘Permitting these asymmetries to continue is not sustainable in today’s economic and geopolitical environment because of the effect they have on US domestic production. A nation’s ability to produce domestically is the bedrock of its national and economic security.’
There are also some exemptions to the tariffs.
Andrew Thurston, customs duty & indirect tax consultant at MHA, said: ‘The pharmaceutical sector will breathe a sigh of relief as exemptions exist and include copper, pharmaceuticals, semiconductors, lumber articles, certain critical minerals, and energy products.
‘It is important to note that the tariffs are based on the “origin” of the imported goods and not where the goods are exported from. This fact creates additional complexities for the US importer as exposure to the variances mean that calculating landed price costs is very difficult, especially if same parts are sourced from various manufacturers located across the globe.
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‘It will not be as simple as routing goods through a favourable country, say the UK, and expecting the UK’s 10% tariff to apply to goods which have been manufactured in the EU. Expect an increased focus on this important aspect of international trade.’
At a launch event in the Rose Garden at the White House, the president said the reciprocal tariffs were half the rate of import duties, charges and taxes the US government calculates the affected countries charge US exporters.
For the 57 countries falling outside the 10% default rate, different reciprocal tariffs will be charged, with a start date of 9 April.
The EU was slapped with 20% tariffs across the board from 9 April, while the worst hit region was Asia. China faces a 34% rate, South Korea 26%, Taiwan 32%, Japan 24%, India 27%, Sri Lanka 44%, while Vietnam exports face a 46% tariff.
For non-EU countries in Europe, Switzerland is hit with a 32% tariff, Norway 16% and Liechtenstein 37%.
Vietnam is a major manufacturing base for US multinationals like Apple, Nike and Intel, which relocated some of their factories to the country to avoid existing US tariffs on Chinese imports. They now need to factor in 46% tariffs, although already Apple has announced plans to build a multibillion manufacturing plant in the US.
The UK currently has a small trade deficit with the US and managed to avoid the wrath of the president, with the reciprocal tariff rate set at 10%.
While the car industry will be hit immediately by the 25% charge, particularly high end car makers like Jaguar Land Rover, Aston Martin and Mini, albeit not UK owned, the biggest exports to the US are pharmaceutical, cars and high tech. The whisky industry will also be hit with a potential 10% spike in prices for a bottle of Scotch.
Barret Kupelian, chief economist at PwC, said: ‘Liberation Day may sound like a celebration, but for global trade, it marks a turning point. It is a significant disruption to the international trading system. The UK avoided a direct blow but the global economy has taken a substantial hit.
‘For the UK, the impact is significant, though less severe than for some other countries. We export around £60bn in goods to the US, including pharmaceuticals, cars, and high-tech equipment.
‘Not all sectors will be hit equally: car exports will face higher tariffs. Manufacturing-heavy areas like the West Midlands and East of England are especially exposed. And because many goods are sold as part of bundled packages, some UK services could also be caught in the crossfire.
‘The one silver lining is that the retaliatory tariff rate applied to the UK is the lowest among affected countries. Our European trading partners will face steeper tariffs, though some of that economic pain will inevitably spill over to UK firms through supply chains and shared markets.’
The big concern for businesses will be economic certainty with the president inclined to change policies at short notice as a result of negotiated deals.
The UK government is trying to secure a free trade deal with the US, and talks are ongoing.
At a meeting with business leaders at Downing Street this morning, prime minister Sir Keir Starmer said: ‘Last night, the president of the United States, acted for his country. That is his mandate. Today, I will act in Britain’s interests, with mine.
‘Decisions we take in the coming days and weeks, will be guided only by our national interest. In the interest of our economy. In the interests of the businesses around this table.
Starmer said that the UK has ‘a fair and balanced trade relationship with the US’ and confirmed negotiations on an ‘economic prosperity deal, one that strengthens our existing trading relationship’ are continuing with high level trade talks with the US.
But a deal will not be struck at any cost, the PM stressed.
‘I do want to be clear I will only strike a deal if it is in the national interest and if it is the right thing to do for the security of working people. In the interest of our economy. In the interests of the businesses around this table,’ he said.
On early trading in Asia markets were hit by the uncertainty, and it has also affected bond markets.
Nigel Green, CEO of global financial advisors, deVere Group, said: ‘Governments already struggling under pandemic-era debt are facing higher borrowing costs as yields rise in response to the uncertainty and inflation threat.
‘This is a body blow to fragile fiscal frameworks. For nations still recovering from years of shocks -financial, pandemic, geopolitical - Trump’s trade war is a major setback.
‘The dollar’s dominance is also no longer a sure thing. America’s credibility is on the line. With the dollar as the global reserve currency, any whiff of unpredictability or politicised policy makes global investors nervous. That trust is hard-earned and easily lost.’
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