At face value, Donald Trump’s embrace of reciprocal tariffs is seen as a declaration of total trade war, potentially causing the largest peacetime shock to global commerce. By promising to impose import taxes on nations that impose tariffs or VAT on US exports, Trump aims to tackle the nearly trillion-dollar trade deficit that he believes is harming American jobs.
Trump plans to use tariffs as an «external revenue service» to reduce the US deficit and encourage domestic production by making imports less competitive. His strategy involves targeting major trading partners with whom the US has substantial trade deficits, such as Mexico, Canada, the European Union, and BRICS nations like Brazil, Russia, India, China, and South Africa.
While the impact on the UK remains uncertain until details are revealed in April, Trump’s tariff threats could have a significant effect. The UK currently has a trade surplus with the US, but the imposition of tariffs could disrupt this balance. Additionally, Brexit has positioned the UK outside the EU bloc, potentially making it more vulnerable to trade disruptions.
Although the UK has few direct tariffs on US goods due to a previous deal brokered by then trade secretary Liz Truss, the addition of VAT to imports could pose challenges for British exporters. Trump’s approach to treating VAT as a tariff by another name could further complicate the situation.
Analysts predict that tariffs could increase export costs by 21%, resulting in a significant blow to national income. Key industries like pharmaceuticals, cars, chemicals, scientific instruments, and aerospace could be particularly affected by the tariffs. It’s important to note that tariffs are paid by importers, not exporters, and Trump himself acknowledges that they will lead to inflationary pressures.
The potential rise in prices in the US could be a major concern, as it may hinder the success of Trump’s tariff plan. Ultimately, the impact of these tariffs on global trade and economies remains to be seen, but they have the potential to reshape international commerce significantly.