At first glance of Donald Trump’s tariff sandwich board, it looks like the UK has enjoyed a “Brexit bonus” for leaving the European Union five years ago – with Britain’s tariff rate at the baseline of 10 per cent compared to the bloc’s 20 per cent.
This has been seized on by champions of Brexit as evidence that the UK is benefitting from being outside Europe.
But is this really the case?
From this Saturday, all British exports to the US, except for cars, will be hit with a 10 per cent tariff – the baseline for the US president’s regime. British-made cars, along with vehicles from other countries, face a higher charge of 25 per cent, which came into force at 5am Thursday. A tariff on car parts will be introduced next month. Trump says the general tariff rate for countries is reciprocal, but with 50 per cent discounts on what he says those states are charging the US. The UK does not get a 50 per cent discount because 10 per cent is the baseline rate. Business Secretary Jonathan Reynolds says the UK in fact charges around 4 per cent for US exports, but Trump is taking other things into account such as VAT to bring this up to 10 per cent. The EU, which Trump claims levies 39 per cent on US exports, has been hit with a 20 per cent rate after the discount.
This looks like a Brexit bonus…
Not being a member of the EU has therefore allowed the UK to escape the 20 per cent rate, and it looks like it is a “Brexit bonus”. This gives the UK government more flexibility in both responding to these tariffs, potentially through retaliatory action, and securing a bilateral trade deal with the US which could, Keir Starmer hopes, mean the overall hit to the British economy and businesses is lower. If the UK were still part of the EU bloc we would not be able to respond in this flexible way. The Prime Minister and Reynolds have both said this morning that “nothing is off the table” when it comes to responding to the new regime.
The “Brexit bonus” Britain supposedly gets under Trump’s tariffs plan needs to be seen in the context of what the country has already lost since leaving the EU according to some economists. A study by the London School of Economics’ Centre for Economic Performance last year calculated that lost trade with the EU cost the UK £27bn in the first two years after departure in 2020. While this was less than had been predicted, the study, which examined 100,000 firms, said Brexit had been a “disaster” for small businesses. Total British goods exports had fallen by 6.4 per cent while imports had dropped by 3.1 per cent. And not being a member of the EU means we cannot enjoy their protection under any counter-measures. The Business Secretary told Times Radio: “I think anyone trying to use this to fight the kind of perennial historical political debates in the UK has missed the point. This is … a really significant change to how the global trading system operates and the US’s role within it. Of course, I’m happy that we in the UK can set our own specific trade policy in our own interests, that’s important to me, and an important way of how we are handling these issues. But, look, this is much bigger than the UK’s relationship to the European Union and we’ve got to recognise that.”
What does this mean for Northern Ireland?
As part of the UK, Northern Ireland will face tariffs of 10 per cent on exports to the US, giving it a relative regional advantage over the Republic of Ireland, which has to contend with 20 per cent tariffs as a member of the EU. But because of its unique position under the post-Brexit Windsor framework, things get more complicated when it comes to any retaliatory measures from the EU. Under the Windsor framework, goods coming into Northern Ireland have to meet EU rules. So measures introduced by Brussels against the US in response to Trump’s tariff regimes will apply in Northern Ireland, and American goods coming into the nation will face EU tariffs. Stuart Anderson, director of Public Affairs and International Relations for Northern Ireland Chamber of Commerce, told BBC News NI: “Yes, Northern Ireland is still part of the UK customs territory and therefore our exports on the face of it seem to have a 10 per cent differential with the south (Republic of Ireland), however that’s really a complex question that really goes down to difficult things like rules of origin which are difficult to get to the bottom of.”
While the UK’s 10 per cent tariff rate may be relatively advantageous compared to other countries, it is still going to cost the British economy billions of pounds, damage economic growth and push up prices, experts warn. While we do not yet know the outcome of a UK-US trade deal, it is unlikely that Britain will come out of this process unscathed. Then there is the cost to British car manufacturers who now face 25 per cent tariffs on vehicles exported to the US. Our luxury car market is particularly strong in the US. There is also a risk that this will have a specific economic impact in areas of the UK with strong motoring manufacturing bases, such as the Midlands. Reynolds told LBC: “People will know companies, great British brands, JLR, BMW, Aston Martin, have substantial exports to the US, and that’s a real issue. Now, we need first of all to make sure we’ve got this negotiation to try and remove those tariffs. There’s no need for them, in my view.”
What does this mean for UK trade with the world?
The impact of punitive tariffs on countries like China and Taiwan will have an indirect impact on the UK. These countries will want to increase their trade with Britain – potentially redirecting cheaper goods into the UK, which will harm our own manufacturing sector. But there is also the likely effect of higher global prices, pushing up inflation, as a result of the Trump regime. Olivia O’Sullivan, director of Chatham House’s UK in the World Programme, said it seemed that the UK had avoided the worst treatment by Trump due to “flattery and offering concessions” but warned: “There’s little predictability in Trump’s approach, no indication the UK was given any specific ‘discount’, and the wider effect of these tariffs on the global economy are still likely to substantially affect the UK. Even if the direct hit on the UK is relatively lower, this volatility will affect the UK because it will likely affect consumer and investor confidence, global prices, and trade. Countries which are affected will face higher prices, and these will likely be passed on to UK consumers and businesses via global supply chains. And, if the tariffs hurt economic growth in key markets, then the wider global economic slowdown will affect the UK. The UK may have avoided the worst in direct tariffs, but the wider hit to economic certainty and trust is significant.”
How significant is this moment?
Barret Kupelian, chief economist at PwC, said so-called “Liberation Day” marks a turning point for global trade – and that there could be a spill-over effect from the EU, taking a dent out of the “Brexit bonus”. Kupelian said: “It is a significant disruption to the international trading system. The UK avoided a direct blow—but the global economy has taken a substantial hit. For the UK, the impact is significant – though less severe than for some other countries. We export around £60 billion in goods to the US, including pharmaceuticals, cars, and high-tech equipment. Not all sectors will be hit equally: car exports will face higher tariffs. The regional impact also varies. Manufacturing-heavy areas like the West Midlands and East of England are especially exposed. And because many goods are sold as part of bundled packages, some UK services could also be caught in the crossfire. Our European trading partners will face steeper tariffs, though some of that economic pain will inevitably spill over to UK firms through supply chains and shared markets.”
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