A UK tariff response? Don’t go there
Ministers tell us that everything is ‘on the table’. And many people believe, even expect, that the UK should retaliate against Donald Trump’s new trade tariffs with tariffs of our own. It definitely should not. That would only harm our own citizens and our own businesses.
Tariffs would be a tax on the goods and services that we buy from the US. And we buy a lot from the US: around £58 billion a year’s worth. That is nearly £1000 for every person (including children) in the country. It would make everything American more expensive—American technology (think Apple) or clothes (think jeans) or energy (US liquified natural gas is a growing part of our energy supply) food (grain, peanut butter, you name it) or entertainment services (movies, music and all the rest) would become more expensive.
UK consumers would have less choice too. If they baulked at the higher prices of US imports, they would have to buy from other sources that might not give them the same range and variety, nor the same quality. UK businesses too might not be able to get the specialist services that they presently buy from US producers.
But if UK consumers and businesses gritted their teeth and paid the extra cost for US products, there would be an upward pressure on prices, like the Consumer Price Index. And even if Milton Friedman was right and inflation is only ever the result of bad monetary policy, the higher prices of US goods might well cause our monetary authorities to make their policy even more inflationary than it is now as they strive to ease the pressure on household budgets.
Many UK businesses rely on importing raw materials or components from the US. The list seems endless: machinery, oils, precious stones, aircraft parts, car engines, electronics, optical goods, pharmaceuticals, wood products, plastics, beverages, cosmetics, nickel, rubber, paper, fruit, building materials, glass, lubricants, aluminium, sugar, copper, leather, coffee, wheat, tin, zinc, lead, and of course cotton. UK-imposed tariffs would raise the cost of those inputs, putting pressure on profits and leading to cutbacks and layoffs. The worst hit by the extra costs would be the small and medium sized enterprises (in other words, 99% of UK businesses) whose margins and reserves are already tight.
UK producers’ supply chains would also be disrupted. If they cannot afford the cost of US inputs should the UK impose tariffs on them, they would have to establish new supply lines to other countries. And they may face logistical or compatibility issues in doing so.
Donald Trump’s tariffs will harm US citizens and businesses. It is already clear to economists that the barriers against imported steel that he imposed in his first term did exactly that. Many important US industries—car making, household appliances, and many more—found themselves paying more for the steel they needed or were unable to get steel of the type and quality they needed. The result was disruption, layoffs and higher prices for consumers. The UK should not want to take even one step down that same road.
There is always the fear, of course, that should the UK retaliate against Donald Trump’s tariffs by imposing tariffs on US goods, that the US would simply up its tariffs even more. Nobody wants to get into that sort of tit-for-tat trade war. It has already cost us too much. Remember too that trade barriers of any sort involve a lot of paperwork. Not just for the governments that have to administer them (and who wants to hire more civil servants when our country is so deeply in debt already) but for businesses too. We have seen that with the bureaucracy impost post-Brexit, given the EU’s rejection of free trade with the UK. And again, it is the smaller enterprises who get swamped by all that red tape.
There is far more to gain from the prospect of a broader trade deal between the UK and US. Even without the Trump tariffs, the US is already highly protectionist in other ways. Non-tariff barriers to trade, like quotas or outright bans on foreign imports, are rife. Tariffs are just the most visible part of it. So we want a deal that reduces all such restrictions. Certainly, the new US tariffs serve to undermine the cooperative relationship between our countries; imposing new UK tariffs would undermine it even more. That is not a good foundation for a fruitful discussion. To risk any chance of goodwill while making our own citizens and businesses poorer in the process it not a sensible policy.
And of course, any loss of goodwill across the Atlantic disrupts not only businesses, but political relationships and balances too. Western friends falling out harms our security and no doubt emboldens our potential enemies. Don’t go there. Let’s not make things any worse than they are.
Eamonn Butler