Protectionist Trump could shave half a percentage point off UK’s GDP: PwC

The tariff fog is lifting, but storms will flare up in the new unpredictable trade environment, says Barret Kupelian (PwC UK’s Chief Economist).

Specifics of US trade policy and more will be announced in the coming days and weeks, but beyond the blur of recent announcements lie the real contours within which US trade policy will move, which has three distinct features.

“First, US trade policy will be more protectionist. The effective tariffs on US imports was around 2%-3% pre-’Liberation day’ and there will be no return to these levels,” he said.

“Second, US trade policy will wear a sector-sensitive shield, with some segments of the economy (e.g. steel, automobiles, semi-conductors) deemed more strategic than others and thus the degree of protection afforded is different.

“Third, it is dynamic and unpredictable. Today’s calm could be tomorrow’s storm. Ongoing Section 232 investigations into steel and aluminium hint at fresh measures that could arrive without warning.”

Kupelian noted that uncertainty isn’t just noise, it’s a growth killer. Trade frictions coupled with uncertainty about US policy and the reaction of others can be costly and distracting, he said.

“Our in-house modelling suggests this protectionist environment could shave around half a percentage point off UK GDP over the medium term relative to a counterfactual of no trade friction.

“Since ‘Liberation Day’, businesses have been in a wait-and-see mode. It is now becoming increasingly apparent that they need to move from tactics to strategy and make longer-term decisions about the future direction of their organisations, their relationships with their suppliers, clients and other stakeholders,” he said.

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