This week, the global markets were roiled by new volatility as US President Donald Trump announced his intention to increase tariffs against major trading partners.
Mexico and Canada were granted a 30-day temporary reprieve for agreeing to clamp down on the smuggling of fentanyl, but China received a tariff of 10%.
Beijing responded quickly, imposing duties up to 15 percent on American products.
Trump has also warned that tariffs against the EU will “definitely” happen.
He did, however, hint at the possibility of a deal with Britain, calling the trade relationship with Britain more balanced than the EU.
The UK has gone off the rails. Trump said to reporters that “I think that this one could be resolved.” He added that he and Prime Minister Keir starmer were getting along well.
Can Trump’s tariffs help the UK economy in its current state?
Last month, Finance Minister Rachel Reeves stated that the UK economy was struggling. She said she “fought every day” to jump-start growth.
According to CNBC, however, certain analysts think that Trump’s tariffs can provide the much-needed lift.
The UK could benefit from more trade and investment opportunities if it avoids US restrictions while EU tariffs are in place.
In the period leading up to the end of September 2024, the US will be the UK’s biggest trading partner. It is expected that the US trade with the UK will account for more than 17% in total.
Trump believes that the UK’s relationship with America, unlike other countries with large imbalances in trade with the US is more equal than Washington’s surplus with the EU.
The shielded service economy
The impact of tariffs on the UK’s economy may be minimal, despite the concerns.
Irina S. Surdu-Nardella is a Professor of International Business at Warwick Business School. She told CNBC, that Britain’s dependence on services, rather than products, shields the country from disruptions caused by trade wars.
She explained that the impact on the UK’s market was relatively small, and would only affect industries like fishing and mining.
The UK’s service-based economy is insulated from tariffs in a significant way.
The tariffs can be particularly damaging to businesses with long supply chains where inputs and final products are often exchanged multiple times.
This is also not true for the UK, where the main export is banking and consulting services.
Cars, aircraft and pharmaceuticals are the top three UK exports of goods to the US, with a combined value of PS25.6 billion (US $31.8 billion).
The impact of tariffs on goods was dwarfed by the exports of services such as insurance and financial services.
Is there a ‘uniquely located’ investment hub in the region?
Neri Sillaman of Oxford University’s Said Business School suggested that Britain could be more attractive as an investment destination if tariffs were avoided.
She said that if the UK remained tariff-free it would be in a unique position to attract talent, investment and create new trading partnerships.
The UK could see a surge in investment and trading opportunities, especially for sectors like fashion, luxury goods, advanced manufacturing, and pharmaceuticals.
The automotive, financial, and aerospace industries would also be able to benefit from an increased demand, if American consumers looked past the tariff-hit European or Asian suppliers.
Sillaman stated that “we have seen this pattern before — every trade war changes the global economy balance. This could be the moment when the UK capitalizes on the change and becomes an active participant rather than being a spectator.”
Can Britain be a’safe haven’ for trade?
Analysts have argued that Trump’s policies could benefit the UK, especially if Europeans and Asians face tariffs but Britain does not.
Alex King is a former FX-trader and the founder of Generation Money. He noted that China had previously routed its exports via Vietnam and Thailand in order to avoid US duties.
He said that the UK would also benefit from similar advantages.
He said that if the UK avoids tariffs it could be in an advantageous position for the EU to follow a similar route.
King pointed out that there were signs the British pound might benefit from this uncertainty. After Trump’s first tariff confirmations the British pound gained against the Euro, Canadian Dollar, Australian and New Zealand Dollars.
He said: “This could suggest that global investors see the UK as an attractive safe-haven.” The UK is one of the only major economies that has relatively free access to the US as well as the EU. This could make it a winner, and also the pound.
The pound lost some of the gains it had made against the Euro on Tuesday but continued to gain against the US Dollar.
What is the UK market worth watching in 2025?
Dan Boardman Weston, CEO at BRI Wealth Management said that the UK can become an important market for investors, if they avoid US tariffs.
He explained that if Trump continues to impose tariffs on countries other than the U.K., more products could end up there and this would depress inflation.
If tariffs continue to rise and are a permanent part of global trade, then there is a greater likelihood that inward investment will increase into the UK.
British firms could be more appealing to international investors if UK interest rates fall quicker than US rates.
He argued that the UK was the best place for 2025 to invest in excess. “Combined with relative political stability and low valuations of the UK, it is the perfect location.”
Trump’s tariffs could shift investors away from Europe
Chris Metcalfe of IBOSS Asset Management said that the UK has become more attractive to foreign investors.
He told CNBC that “for foreign investors since 2016, there are reasons to choose an EU country over the UK. This is primarily because of its larger market.”
He suggested this could be changed, but with Trump’s tariffs hanging over Europe.
It is difficult to imagine a situation where Trump reverses his course and increases tariffs against the UK instead of the EU. It is clear that this creates a favorable environment for US investment and companies to come into the UK. This is especially true given the current political turmoil in France and Germany.
Could the UK emerge as the winner in this post-Trump’s tariff storm? The ICD appeared first.
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