Trump's latest tariff onslaught threatens to hit Britain where it hurts

Yahoo

07-05-2025

Hollywood actor Jon Voight is most familiar as the star of gruesome horror flick Deliverance, the villain in Mission: Impossible, and as Angelina Jolie's father.
But the veteran star's new role threatens to have a much greater global impact than any of his turns on the silver screen.
That's because in an unlikely twist, the actor has been asked by the US president to work out how to save Hollywood's ailing film industry – and in doing so appears to have moved the White House on to a new front in its trade war against services imports which threatens to imperil Britain.
Services exports, which include films, are far more important for Britain's economy than the sale of tangible, manufactured products – which Trump has already targeted with his 'liberation day' tariffs.
The UK sent £59.3bn of tangible goods such as cars, medicines and aircraft across the Atlantic last year. But that was dwarfed by the £137bn of services sold into America, led by business services such as consultancy, as well as finance, pensions, insurance, telecoms and travel.
'Just the notion of tariffs being extended to services has the potential to cause more economic damage simply through the uncertainty it generates,' said Chris Williamson, chief business economist at S&P Global.
The UK's services prowess may become a lightning rod for Trump's ongoing campaign against trade imbalances. While imports and exports of goods between Britain and the US are relatively balanced, the situation is very different for services.
British sales to the US exceed trade in the other direction by a margin of £75.8bn – a gap which risks incurring Trump's wrath if he starts to view the one-sided balance of trade as a problem.
Any threat to those sales would be extremely serious, especially for Britain's financial services and legal profession which helps drive the economy.
Miles Celic, chief executive of industry group TheCityUK, said: 'The relationship between the UK and the US in financial services and investment is the closest of its kind anywhere in the world – we are each other's largest investors.
'British firms have huge footprints in the US in financial services ... American financial services and professional services firms are a huge engine of growth for financial services here in the UK.
'The nature of trade in services is that tariffs are less of an issue. It is not completely irrelevant, because tariffs have an impact on clients for financial services firms.
'But the concern for financial and other forms of services is always around regulatory barriers – the role of regulation in the movement of people and capital, and minimising friction between each others' markets.'
Traditionally, tariffs have only been charged on goods: they need to be brought into a country via a port of entry, which makes them easy places for the authorities to police movements and levy taxes.
But services are rather more complicated.
In the case of a film – or a wider range of other services like an architect's blueprints, an insurance contract or a workplace training session – the transfer across borders can happen via an upload to a website or an attachment to an email, or even a phone conversation.
None of those 'imports' into the US are easily observable by the taxman.
Ingo Borchert, professor of economics at the University of Sussex Business School and deputy director of the UK Trade Policy Observatory, says taxing a cross-border digital transfer would pose challenges.
'It is pretty hard to see how that would even be feasible – we don't get to observe this,' he says.
'A services transaction is, for tax purposes, a business transaction, and is subject to VAT. So it is perhaps not inconceivable to imagine that the US might require its companies to reveal whether purchases have been made from abroad or not.'
When it comes to a cinema, a film made abroad could incur a surcharge. But the source of a product made with input from around the world is not always obvious. 'To what extent that entails incentives for truthful reporting, obviously I would not know,' says Borchert.
'But that is the only way to do it – you do not see the service travelling across the border.'
Alternatively, visas could be made more expensive for business travellers visiting the US to work, for example, as a consultant for an American business.
It would be possible to impose stricter conditions on foreign businesses setting up operations in the US – though that would not match Trump's goal to drag more businesses and jobs into America.
Yet the Trump administration is far from the first to consider limits on services trade. Foreign companies face a host of difficulties operating in countries including China, for instance, while the EU has powers to retaliate with its own restrictions on services.
Allie Renison, from SEC Newgate, explains that any US tariffs or limits on services trade could lead to a new tit-for-tat escalation.
'The EU has its Anti-Coercion Instrument, the nuclear option for extending retaliatory measures to services. So far the EU has held off doing that, but I think if the US really went ahead with this, the EU would probably be minded to drop that into retaliation,' she says.
That could cover anything from cutting American businesses out of public sector contracts, to restricting licences to operate in the EU or the mutual recognition of qualifications which allows Americans to work in regulated industries on the Continent, to taxing royalty payments earned by US intellectual property in Europe.
As things stand, services exports are already in trouble anyway.
New export orders fell last month more steeply than at any point since 2021, according to S&P Global's PMI survey of services businesses.
While that partly reflects a slump in demand as the trade war slows the global economy, it also includes services which are embedded in goods – the insurance and trade finance which is bought as products are shipped, or the servicing contracts which go alongside the sales of jet engines.
'A lot of services are closely correlated with goods production and exports – logistics, packaging. Those will struggle. But there is a broader downturn in global business and consumer confidence, so companies are pulling back on investment and expansion plans,' says Williamson at S&P.
Every building project cancelled means less work for consultants, architects and accountants, he says, while putting other plans on hold means less need for finance, even without direct tariffs on services trade.
But the threat alone has echoes of an old fashioned Hollywood disaster movie.
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