Trump's £20 billion blow could 'knock out' the British economy

President-elect Donald Trump could wipe out nearly 1% of the UK economy if he officially imposes tariffs on all imports into the world's largest economy, as he planned before the election.

A second presidential term for Trump could pose significant challenges for Prime Minister Keir Starmer and the British economy. (Source: The Times)

The Times noted that Donald Trump's second term poses significant challenges to the United Kingdom and its special relationship across a range of areas – with economics, defense, and political relations being the most important.

Economists at the Centre for Economic and Business Research (CEBR) warn that the President-elect's plan to impose a 20% tariff on all imports and increase tariffs to 60% on Chinese goods, without retaliation, could reduce the UK's GDP by 0.9% by the end of Trump's second term. This is equivalent to a loss of around £20 billion, based on 2023 figures for the size of the UK economy.

Meanwhile, estimates from the National Institute of Economic and Social Research (NIESR) suggest that a 10% tax could cut UK economic growth by 0.7 percentage points.

The CEBR report assesses that the clearest way to avoid a blow from the US is to agree to a bilateral free trade deal, but acknowledges that many hurdles remain to overcome to ensure such an agreement becomes a reality.

"Unfortunately, the main sticking point in reaching a US-UK trade agreement remains food standards and tariffs – issues that could be used to pressure the UK into accepting US tariff demands," according to CEBR.

Therefore, there is growing concern about the impact of Trump's tariff plan on the UK economy and its effect on inflation.

In recent weeks, financial markets have also lowered expectations for UK interest rate cuts following Trump's victory and recent budget measures – both seen as having inflationary effects.

Politico reports that Trump's return to the White House in January 2025 is causing concern among businesses across the Atlantic. Marco Forgione, Director of the Royal Institute of Export and International Trade, said: “Trump has made it very clear that America must come first. He wants to boost investment in the US and bring as much manufacturing back as possible.”

This shows that UK manufacturers cannot be complacent with the good relationship that Mr. Trump once demonstrated.

While Trump's policies don't directly target British exporters, among the "trade weapons" he could use, a fixed tariff of 10-20% on all imports into the US is one of the biggest threats.

Economists also warned that, given the US is the UK's largest export market, the impact on the British economy would be very serious.

Harrison Griffiths, Director of the International Programme at the Institute of Economics, said the prospect of import tariffs would “sound the alarm” for British businesses. In the year to August 2024, the UK exported goods worth £58.3 billion ($75 billion) to the US. Industries such as automotive, aerospace and pharmaceuticals would be among the hardest hit.

However, the CEBR report indicates that there may be "opportunities" for the British economy from Trump's policy plans. Analysts suggest that London could "strengthen its position as a leader in green technology by leveraging the global shift toward clean energy investment and the potential for lower priority in this sector under the Trump administration."

Economist Sara Pineros says the UK economy is facing a critical juncture in acting on its growth agenda and positioning itself as a competitive investment destination. While US tariffs and rising protectionism pose challenges, several other proposals under the President-elect's administration could offer opportunities for the UK to adapt and thrive.

"If it doesn't strengthen its approach, the UK risks suffering all the pain associated with the Trump presidency without realizing the potential benefits," economist Pineros said.

Furthermore, regarding the UK government's response, Finance Minister Rachel Reeves downplayed concerns about an impending trade war with the US. She affirmed that the UK maintains a strong economic relationship with the US and will continue to support free trade. However, she also stressed that London would not stand idly by if Washington imposed tariffs.

"We're not going to be just a passive actor in this. We're going to make strong statements about the importance of free trade," said Secretary Rachel Reeves.

Source: https://baoquocte.vn/don-20-ty-bang-cua-ong-trump-co-the-danh-knock-out-nen-kinh-te-anh-294395.html