U.S. Tariff Expectations on UK Imports

By Shaloo Shrivastava

BENGALURU (Reuters) – U.S. President-elect Donald Trump will impose a tariff of less than 10% on UK imports next year, or none at all, which economists believe will have an insignificant effect on the UK economy, according to a strong majority polled by Reuters.

These expectations contrast with fears that the European Union (EU), which the UK left in 2020, will be more adversely affected, as indicated by a similar poll last month.

Economists are optimistic, partly because while one-fifth of total UK trade is with the United States, only a third of Britain’s exports are goods—where the tariffs would focus.

Trump aims to correct U.S. trade deficits with other countries, but differing methodologies employed by the respective statistics agencies mean both nations report mutual goods trade surpluses.

The EU remains the UK's biggest trading partner, presenting London with a delicate challenge of mending strained relations with Brussels while engaging with a new U.S. administration.

James Rossiter from TD Securities noted, "Without the broader complexities of the EU trading bloc, the UK will be somewhat more flexible in reaching a negotiated settlement with President Trump. It also helps that trade in goods with the U.S. is roughly balanced, meaning the tariffs may end up being lower."

More than 80% of surveyed economists (19 of 23) expect tariffs on UK imports to be below 10% or even zero, despite talks of a blanket 10-20% tariff on all countries and higher tariffs on China, Canada, and Mexico. Only four forecast a 10-20% tariff.

A similar proportion of economists (20 of 25) believe the tariffs will have an insignificant impact on the British economy, which is positive news for Prime Minister Keir Starmer's government focused on growth. Four believe there will be significant impact, while one sees no impact at all.

Stefan Koopman at Rabobank remarked, "The UK is relatively well positioned to withstand the repercussions of Trump’s proposed trade tariffs. As an open economy, the UK will inevitably feel some impact of a trade war, but likely to a lesser extent than heavy-manufacturing dependent countries, like Germany."

Bank of England (BoE) Monetary Policy Committee member Megan Greene stated last week that it is premature to gauge potential impacts of tariffs on the UK economy or others.
"None of us know exactly what those tariffs might look like. We can't even work out which direction tariffs would push inflation, particularly in the UK and to some degree in the euro zone," Greene said.

British inflation rose to 2.3% in October, up from 1.7% in September, prompting the BoE to retain a cautious approach in easing interest rates gradually.

All 71 economists polled from Dec. 6-11 predicted the BoE will hold the Bank Rate at 4.75% on Dec. 19. Median forecasts showed the BoE would cut the Bank Rate by 25 basis points each quarter next year, reducing it to 3.75% by the end of 2025.

Approximately 54% of economists (36 of 67) expected a total cut of 100 basis points by year-end 2025, while 17 anticipated cuts of 125 basis points or more, and 14 expected reductions of 75 basis points or less.

(Other stories from the Reuters global economic poll)