Trade War Round II: The UK Escapes Trump’s Tariff Impact

The second round of the trade war ignited by US President Donald Trump has caused new market volatility globally this week. While Trump has postponed the 25% tariff increase on Canada and Mexico, the 10% tariff on China went into effect on February 4.

However, the impact of Trump’s trade war seems to be minimal for the UK. Despite threatening the European Union (EU) with similar tariffs, the UK appears to be spared from the brunt of the trade conflict.

In his statement to the press this week, Trump indicated that the EU would face tariffs but that a "deal could be made with the UK."

"The UK is not aligned. But I’m sure it can be resolved," Trump said, adding that he is "very familiar" with UK Prime Minister Keir Starmer.

The UK is said to have a relatively balanced trade balance with the US, where both countries share small trade deficits, unlike others affected by high tariffs.

It is important to note that the US is the UK’s largest trading partner up to September 2024, accounting for over 17% of the UK’s total trade.

Tariffs Have Limited Impact on the UK

According to UK Chancellor of the Exchequer Rachel Reeves, the UK is not part of the issue in US trade concerns. Trump has imposed tariffs to manage the trade deficit, aiming for more US exports to other countries than imports.

Economists believe that even if tariffs are applied, the impact on the UK will be limited.

"The impact on the UK market will be limited to sectors like fisheries and mining," said Irina Urdu-Nardella, a professor at Warwick Business School, quoted by CNBC International, Thursday (Feb 6, 2025).

"The UK’s economy, which is service-oriented, protects it significantly from the consequences of tariffs," she added, explaining that tariffs mostly harm industries with complex supply chains.

The UK’s Unique Position

According to Neri Karra Sillaman, an observer from Oxford University’s Said Business School, avoiding tariffs entirely would be the ideal scenario for the UK, which could boost its key industries.

"If the UK remains tariff-free, it could uniquely position itself to attract investment, talent, and new trade partnerships," said Sillaman, noting that the UK could become a gateway for companies seeking to avoid tariffs.

Sectors like luxury goods, fashion, pharmaceuticals, and advanced manufacturing could benefit from increased investment and trade. Even sectors like automotive, aerospace, and finance could profit from rising demand.

The British Pound May Win the Trade War

Former forex trader and founder of Generation Money, Alex King, agrees that Trump’s policies could offer economic relief to the UK. The British pound could become a major winner in this trade war.

"If the UK manages to avoid tariffs, it could position itself as an attractive market for goods from the EU," said King, adding that following Trump’s tariff announcements, the pound strengthened against the euro, Canadian dollar, and Australian dollar.

The UK Has a Chance to Win by Avoiding US Tariffs

According to Dan Boardman, CEO of BRI Wealth Management, the UK has an opportunity to gain by avoiding US tariffs. This could create an attractive market for investors.

"If tariffs are applied to other countries, it makes sense for more goods to end up in the UK, which could help curb inflation," Boardman said.

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