Possible Impact of US Tariffs
Background
Members will be aware of the decision by the US Government to impose new tariffs on imports from Canada, Mexico and China, although it subsequently postponed those on Canada and Mexico. There are concerns that the US may go further and target EU imports and that there will be retaliatory tariffs from these countries which leads to a global trade war.
The rapid changes we have seen on US tariff policy and the uncertainty of what future actions it might take mean it is too early to assess the impact on the UK economy and retailers in particular. That view was confirmed by Government when we spoke to the Department for Business and Trade (DBT) but they are monitoring the situation and we will continue to liaise with them.
To help assess possible impacts if there is further and wider action on tariffs, including retaliatory action we have prepared a short summary of issues to consider and how the BRC can help your business. It is worth noting, it is probably likely to be indirect factors from downturns in global economies which will affect us more than the direct impact of US tariffs.
Trade Impacts
Although not as important as the EU, the US is still a significant trading partner of the UK, the largest single country we trade with. In 2023 the UK imports from the US were £112.1bn (£57.9bn goods, £54.2bn services) and exports from UK to US were worth £179.4bn (£60.4bn goods, £118.9bn services) that compared to imports from the EU of £566bn (£319bn goods and £147bn services) and exports to the EU of £356bn (£185bn goods and £171bn services).
If the UK was drawn into a tariff trade war with the US, with retaliatory tariffs it is unlikely to have a significant impact on supply chains and prices for consumers. Whilst there will be agricultural commodities and finished goods imports to retail from the US which would be affected, the 5 largest import categories are crude oil, mechanical generators, medicinal products, refined oil and aircraft. ONS estimates UK retail imports goods worth £1.39bn and exports goods worth £2.32bn, further confirming any tariff increases would not have a significant impact on UK retail. Manufacturers based in or exporting to the UK could be affected if their supply chains rely on US components but generally the direct impact of US-UK trade on UK retailers is not likely to be significant.
The US could take action on services which would affect UK retailers operating in the US but generally measures on services are more difficult to implement than on goods.
Global Economic Impacts
More important than trading with the US it is likely to be the impact of global economic factors which have the biggest impact on retailers. As countries cope with a likely downturn in trade it will affect their economies and their ability to trade with the UK, bringing down our own growth. Wider global use of increased tariffs, as countries retaliate to US action, would also be inflationary and we are likely to see the price of goods rise across the board affecting the cost of our imports and inputs, such as oil a key component of production costs.
A trade war is also likely to affect confidence in global markets, pushing up interest rates for both businesses and consumers reducing spending. Higher borrowing rates would also impact UK Government borrowing and threaten its fiscal targets, meaning either bigger cuts in Government spending than planned or further taxes.
The combination of reduced trade, reduced market confidence and higher interest rates would have a damaging affect on UK growth.
What is the BRC Doing About This?
We aim to get you the best updates on trade policy. We are liaising with the Department of Business and Trade (DBT) to understand the UK Government’s possible reaction and intelligence on the EU response. An official from DBT will be joining our next Trade and Logistics Community call on the 6th March 1pm to update us on this issue and the Government’s aspiration to improve the trade agreement with the EU. More details here
We will also be working with DBT, HM Treasury, CBI and other business organisations to understand the impact on their sectors, particularly those in our supply chains and the wider economy.
Finally we will provide balanced comment, where necessary for the media. Our current line, reflecting the current uncertainty of future impact is below
"It's too early to say what tariffs might be levied by the US, or what retaliatory tariffs they might create elsewhere. Nonetheless, the overall impact of trade barriers may be to increase global prices of goods, and create inflationary pressures that could be felt globally. Retailers in the UK already face significant cost pressures from the Budget this year, and further global cost pressures would be unwelcome for retailers and customers alike."
