By Evans Momodu
5 minute read
Donald Trump's plan to impose blanket tariffs on all imports to the United States is expected to have an "insignificant effect" on the UK economy, according to a poll of international economists conducted by Reuters.
While concerns about the impact of tariffs of up to 10% on UK goods persist, the poll suggests the UK might even be exempted from the measures altogether.
Key Insights:
- UK Trade Relationship: The UK and US both report trade surpluses with one another, and the majority of UK trade with the US involves services rather than goods. This reduces the potential impact of goods-focused tariffs.
- Focus on Trade Deficits: Economists believe Trump's tariffs primarily target nations and blocs with significant trade deficits with the US, such as the EU, China, Canada, and Mexico.
- Eurozone Challenges: By contrast, eurozone nations—especially Germany—are likely to face greater economic repercussions due to their goods-led trade relationship with the US. Germany's economy is already struggling, with warnings of a potential contraction if tariffs are implemented.
Broader Economic Context:
- Inflation Risks: Economists warn that tariffs could raise inflation in the US as the higher cost of imported goods is passed on to consumers. The UK, already managing inflationary pressures, could feel indirect effects.
- Bank of England Position: The Bank of England is expected to maintain its interest rate at 4.75% in the short term but could implement up to four rate cuts next year if economic conditions deteriorate.
Political and Economic Implications for the UK:
- Trade Balance: The UK conducts 20% of its trade with the US, making the American market vital. However, its largest trading partner remains the EU. Prime Minister Sir Keir Starmer faces a diplomatic challenge in balancing relationships with both major trade partners amid a potential global trade conflict.
- Tariff Exemptions: Four economists surveyed by Reuters predicted that the UK might be fully exempted from the proposed 10-20% tariffs, positioning it more favourably than other US trading partners.
Economists like Stefan Koopman from Rabobank suggest the UK is "relatively well-positioned" to weather the effects of a trade war compared to manufacturing-heavy nations like Germany.
However, the situation remains fluid, with potential implications for inflation, interest rates, and broader economic stability.
Source: Sky news
