Concerns are rising among UK businesses following US President Donald Trump’s announcement of potential new tariffs that could affect trade between the two countries. Trump has instructed officials to develop “reciprocal tariffs” on individual countries, factoring in trade agreements, imports, exports, and the inclusion of Value Added Tax (VAT) in the assessment.
The announcement has prompted questions regarding its potential impact on British businesses. Analysts suggest that tariffs of 20% or more could be applied to both the UK and the European Union, though the outcome remains uncertain.
UK Industry Response
The British Chambers of Commerce (BCC) has expressed concerns over the impact on key sectors such as automotive, pharmaceuticals, and food and beverage exports. According to the BCC, these industries could be significantly affected if tariffs are implemented.
UK Industry Minister François-Philippe Champagne stated that the UK would closely monitor developments and continue discussions with US trade officials to mitigate any adverse effects.
Trade Relations and VAT Considerations
The US and UK report trade surpluses with each other due to differences in data collection methods. While it remains unclear whether the UK will be exempt from tariffs, the inclusion of VAT in tariff calculations has introduced additional uncertainty.
VAT, a consumption tax applied to most goods and services in the UK at a standard rate of 20%, is typically levied regardless of whether a product is imported or domestically produced. Trump’s administration has cited VAT as a “potentially unfair or discriminatory” tax, raising concerns about its role in determining tariffs.
George Saravelos, global head of FX research at Deutsche Bank, suggested that if the US applies tariffs based on both existing trade duties and VAT, UK businesses exporting to the US could face charges of approximately 21%.
Business and Government Reactions
William Bain, head of trade policy at the BCC, noted that the UK exports fewer goods to the US than some other countries, potentially reducing overall exposure. However, he warned that the proposed tariffs could “create more cost and uncertainty” and disrupt established trade practices.
Some UK businesses are considering alternative strategies to navigate potential tariff increases. Fiona Conor, managing director of Leeds-based Trust Electric Heating, stated that her company is exploring US-based production options due to tax incentives for innovative businesses. She emphasized the importance of strong trade negotiations and urged Prime Minister Sir Keir Starmer to reinforce the UK-US partnership.
Paul Ashworth, chief UK economist at Capital Economics, pointed out that VAT is generally considered a non-discriminatory tax, as it applies uniformly to domestic and imported goods. However, some US officials have argued that the lower average US sales tax places American businesses at a disadvantage.
Uncertainty Surrounding Tariff Implementation
Trump’s recent statements indicate a shift toward country-specific tariffs rather than a blanket import tax. Legal and trade experts suggest that the exact implementation remains uncertain. Caroline Ramsay, partner and head of international trade at law firm TLT, noted that “reciprocal” tariffs may not align precisely with existing UK trade policies, and the US could determine fairness based on its own assessments.
BCC officials stress that negotiations will be essential to prevent escalating trade tensions. Senior UK government minister Pat McFadden stated that the government would carefully evaluate developments before taking any action. “The most sensible approach is to assess these announcements, determine their likelihood of implementation, and then decide on the appropriate response,” he said.
As discussions continue, businesses and policymakers in both countries will closely monitor potential implications for trade and economic relations.
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