The worst-case scenario for Trump’s tariffs on the UK

The British Chamber of Commerce met with Trade Minister Chris Bryant on Monday (19 January) to offer its support for the calm, level-headed response from the Prime Minister to the latest US tariff threat.

Shevaun Haviland CBE (BCC Director General) and Steve Lynch MBE (Director of International Trade) had a previously scheduled meeting with the Minister to discuss a range of trade issues.

But they took the opportunity to talk about the developing threat of fresh US tariffs for UK businesses of 10% at the end of January with an additional 15% in June.

Commenting afterwards, Haviland noted that the UK had maintained a cool head when it comes to tariffs – but that the effects might still be felt in the coming months.

“Throughout tariff developments, the government has kept a cool head and continued to negotiate. That’s seen us establish a competitive advantage over many other countries in the US market for goods like steel and pharmaceuticals,” she said.

However, she noted that everyone was ‘still in the foothills’ when it comes to these new tariff proposals from the President, and there is some way to go before we will have final clarity on them.

“But should the worst-case scenario come to pass, then the impact would be significant. A £6 billion hit at the end of January, rising to £15 billion in June.

“If that happens, orders will drop, prices will rise, and global economic demand will be weaker as a result. That would be a lose-lose situation for everyone,” she said.

Haviland added that the UK is not without influence. “Bilateral trade with the US is worth £300 billion, we have £500 billion invested in its economy, and it has £700 billion tied up in ours. There is a high-level of co-dependency.”

She warned that the e government should keep everything on the table during talks. 

“Many firms, especially SMEs, will now be facing difficult decisions and we urge it to consider its contingency plans for support should the worst happen.  The existing 10% tariff means that many businesses have already negotiated with their US customers on managing the impact and we would suggest they continue this dialogue. 

“Last year, enhanced credit and financial support were offered through UK Export Finance and the British Business Bank to cushion the effect of tariffs, and this is another option.”

Below is the BCC’s assessment of the current situation:

The US President has threatened to introduce a new 10% tariff for UK imports into the US from 1 February.
If the issue of Greenland’s future is not resolved to his satisfaction by 1 June, he has said he would raise this tariff to 25%.
No executive order or proclamation has yet been issued by the US government to clarify what legislation would be used to implement these new tariffs.
It could be as late as 31 January before this is known.
If the legislation used is the same as for the existing reciprocal tariffs, it would be the International Emergency Economic Powers Act 1977 – IEEPA.
If that is the case, then the tariffs would stack upon the existing 10% rate applicable to UK exports subject to reciprocal levies. 
To date, there has not been a case where IEEPA tariffs have been stacked on top of section 232 tariffs (implemented under the US Trade Expansion Act 1962).  
This is the legislation which has been used for steel, aluminium, automotives pharmaceuticals and semiconductors.
In this scenario, products like steel, pharmaceuticals or semiconductors subject to s232 tariffs could see these remain at present levels or they could be revised in line with Presidential authority over existing s232 tariffs.
For other product lines already subject to reciprocal tariffs of 10%, such as clothing and whisky, these new proposals will most likely stack on top of the existing tariff. 
This means the IEEPA rate for the UK would become 20% from 1 Feb, and 35% from 1 June.