Starmer and UK economy braced for impact of Trump's tariffs

Independent

02-04-2025

Sir Keir Starmer and British businesses are braced for the impact of Donald Trump's 'liberation day' tariffs, which have the potential to derail the Government's hopes for economic growth.
The UK's FTSE 100 fell slightly on Wednesday in anticipation of Mr Trump's announcement due at 9pm, which is expected to slap import taxes on goods arriving in the US from around the world.
The car industry has already learned its fate, with a 25% tariff on vehicles sent to the US – something which could cost an estimated 25,000 jobs in the UK.
Intensive diplomatic efforts and negotiations on a UK-US economic deal are not expected to be enough to spare British exporters from Mr Trump's tariff plans.
The Prime Minister has said he expects the UK will be hit and Chancellor Rachel Reeves warned Cabinet ministers there would be an economic impact from the tariffs.
The imposition of tariffs will make British goods more expensive in the US, which is likely to reduce demand.
Before Mr Trump's announcement, Sir Keir will face MPs at Prime Minister's Questions, while the Commons Treasury Committee will question the Chancellor.
Economists at the Office for Budget Responsibility have warned that US tariffs could eliminate Ms Reeves's 'headroom' against her day-to-day spending plans, requiring her to make more cuts or hike taxes to meet the rules she has set herself.
The tariffs could knock up to 1% off the size of the UK economy if there is a full-blown trade war with the UK retaliating to Mr Trump's measures.
Meanwhile, analysis from the Institute for Public Policy Research (IPPR) suggested tariffs on car imports would put 25,000 UK jobs at risk and 'completely destabilise the UK car manufacturing industry'.
Although a deal will not be reached before Mr Trump's announcement, UK negotiators are reported to be pursuing an agreement with the US focused on technology.
Such a deal is said to include possible changes to the digital services tax – which imposes a 2% levy on the revenues of several major US tech companies – in exchange for a carve-out from the tariffs.
Ministers have refused to deny that changes to the digital services tax are being considered.
Easing access for US agricultural products to UK markets could also be on the table, although officials have insisted that food standards will not be lowered.
Sentiment in the European financial markets was weak on Wednesday morning as investors awaited Mr Trump's announcements.
In Germany, the Dax was falling about 1.2%, continuing a choppy week for the country's top index, and in France, the Cac 40 was down about 0.7%.
The UK's FTSE 100 was on slightly stronger footing to its peers but still down around 0.5% in early trading.
Cabinet minister Bridget Phillipson acknowledged it was 'going to be a difficult period'.
The Education Secretary told Times Radio: 'Our teams are working at pace, have been working really hard in recent weeks, to put us in the best possible position to secure a deal.
'But I think we all recognise this is going to be a difficult period, but there won't be any knee-jerk reactions from this Government.
'We will reserve all our options in terms of the responses that are available to us, but our focus at the moment is on continuing those discussions and seeking to get a good deal, that's in the national interest.'
Retaliatory tariffs from the UK are not expected immediately, as efforts focus on striking a deal with the White House.
But European Commission chief Ursula von der Leyen signalled Brussels was prepared to respond, saying 'we have the power to push back'.
Liberal Democrat foreign affairs spokesman Calum Miller said: 'Despite weeks of refusing to criticise Donald Trump's damaging behaviour, it's now increasingly apparent that the Government will not secure a carve-out for the UK ahead of Trump's global tariff war.
'Trump has shown himself to be an unreliable partner on the economy. No-one, not even the US's oldest allies, are safe from the economic harm reaped by this White House.
'We need to end this trade war as quickly as possible. That means working with our Canadian and European allies in a united front against Trump, including retaliatory tariffs where necessary – as well as negotiating a bespoke new customs union agreement with the EU to better protect British businesses.'
But Conservative leader Kemi Badenoch has said the Government should not retaliate, telling LBC on Tuesday that a trade deal was the 'best way' to avoid tariffs and that retaliation would 'make everyone poorer'.
It is unclear what Mr Trump will announce on Wednesday, but his administration views the application of VAT rate as discriminating against US goods and could respond with a 20% tariff on imports from the UK.
White House press secretary Karoline Leavitt said the new tariffs would take effect immediately, telling reporters: 'April 2 2025 will go down as one of the most important days in modern American history.'