Donald Trump’s promise to impose up to 20 percent tariffs on imports from around the world, and even higher rates in China and Mexico could have significant consequences for British exporters.
The United States is a major market for UK products like Land Rovers and chemicals.
The UK is more dependent on US trade than its EU counterparts
The US, according to the McKinsey Institute Global and UN Comtrade data, is the top destination for British exports in nine of the 15 sectors.
Comparatively, four German sectors and only one French sector are as dependent on American demand.
Tera Allas is director of McKinsey UK & Ireland’s research and economy department. She said that the US dominates the UK in many industries.
The UK is more susceptible to changes in American policies due to this dependency.
The robust service sector in Britain, which accounts for nearly two thirds of UK-US Trade, could provide some protection from possible tariffs.
Exports of goods, while less important in terms of GDP contributions, are still a vital part of Britain’s economy.
Transport and pharmaceutical industries are highly exposed
Transport equipment, including major players such as Rolls-Royce Holdings Plc, Jaguar Land Rover and others, are particularly vulnerable.
Nearly a fifth (89.9 billion dollars) of UK transport equipment sales in 2022 came from the US.
Rolls-Royce earned nearly a third its revenue globally in North America by 2023. It also has facilities in Indiana Michigan and South Carolina. This could protect it from tariffs’ worst effects.
Jaguar Land Rover, on the other hand, relies heavily on US sales for almost a quarter (PS29 billion) of its annual revenues.
AstraZeneca Plc, and GSK Plc, both pharmaceutical giants, derive 42 and 52 percent of their respective sales from the American marketplace.
The two companies are increasing their manufacturing in the US as they prepare for future disruptions of trade.
UK-US Trade Relationship Valued at Over PS300B Annually
The threat of tariffs on goods is very real. While services account for the majority of the UK-US annual trade, valued at more than PS300 billion (£300.9 billion), the relationship between the two countries has a value exceeding PS300.9 billion.
Bloomberg Economics warned that Trump’s protectionist policies could, in the worst case scenario, bring UK GDP below 1%.
Emily Fry is a senior economist with the Resolution Foundation. She said this in an article by Bloomberg.
The US is the largest goods export market for us, with several industries such as pharmaceuticals having high exposure.
Some relief can be found in the fact that historically, pharmaceuticals have been less susceptible to significant tariff increases.
AstraZeneca’s CEO Pascal Soriot expressed cautious optimism regarding the resilience of this sector, even though there is still uncertainty.
The UK has been trying to strengthen trade relations with the US since Brexit. However, efforts to reach a comprehensive agreement on trade have repeatedly failed.
The main sticking points are disagreements over tariffs, climate change and government procurement.
The Trump Administration’s threats of tariffs could complicate the negotiations despite the Labour Government’s focus on free trade.
Maxime Darmet is a senior economist with Allianz Trade and he said in the report that Trump’s tariffs are likely to target these sectors.
For instance, equipment and machinery are key manufacturing products for which the US has a large trade deficit with most other countries. The US would like to bring the production back on US soil.
British exporters prepare for ripple effects
The full effect of Trump’s policies remains unknown for the time being.
British exporters, however, are wary of the potential effects that could have on employment, revenue, and economic growth.
The stakes are very high, as key industries like pharmaceuticals, transportation equipment and machinery are heavily dependent on the US.
Trump’s policy could change the dynamic of transatlantic trade.
British businesses must now navigate through the uncertain and devise strategies to minimize potential disruptions.
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