Market Analysis

UK Exports to U.S. Likely Unscathed by Proposed Tariffs, Say Economists

Amos Simanungkalit · 12 Dec 202454.2K Views

Image Credit: Reuters

U.S. President-elect Donald Trump is expected to impose a tariff of less than 10% or none at all on UK imports next year, with little impact on the UK economy, according to a large majority of economists surveyed by Reuters. This outlook contrasts with concerns about the potential negative effects of tariffs on the European Union, which the UK officially left in 2020.

Economists are more optimistic for the UK due to the fact that while the U.S. accounts for about one-fifth of UK trade, only a third of Britain's exports are goods, which would be most affected by tariffs. Both the UK and the U.S. report trade surpluses in goods with each other, despite their different methods of calculating trade statistics.

The European Union remains the UK's largest trading partner, presenting a challenge for the UK as it seeks to balance repairing relations with Brussels while negotiating with the new U.S. administration. According to James Rossiter of TD Securities, the UK's absence from the EU bloc makes it more flexible in negotiating with President Trump, and the relatively balanced trade in goods with the U.S. means tariffs could be lower.

More than 80% of economists (19 out of 23) predict a tariff of less than 10% or zero on UK imports, with only four forecasting a 10-20% tariff. A similar number (20 out of 25) believe the tariff will have minimal impact on the UK economy, which is good news for Prime Minister Keir Starmer's government, focused on boosting growth. Only a few economists see a significant impact.

Stefan Koopman from Rabobank said the UK is better positioned than countries heavily reliant on manufacturing exports, such as Germany, to withstand the potential effects of trade tariffs. However, BoE Monetary Policy Committee member Megan Greene cautioned that the full impact of the tariffs remains uncertain, particularly regarding inflation.

In terms of monetary policy, all 71 economists polled expect the Bank of England (BoE) to keep the Bank Rate at 4.75% on Dec. 19, with most predicting gradual rate cuts in 2024, lowering it to 3.75% by the end of 2025.