A new strategy by President Donald Trump has UK businesses concerned about the potential implications of increased trade taxes. Trump’s plan involves developing “reciprocal tariffs” based on trading agreements with individual countries, including imports and exports. While the UK’s trading relationship was believed to be less susceptible to tariffs, the inclusion of Value Added Tax (VAT) has raised questions about the impact on British businesses. Analysts predict tariffs of 20% or more could be imposed on the UK and the European Union, but the final outcome remains uncertain.
The British Chambers of Commerce (BCC) has highlighted specific goods such as cars, pharmaceuticals, and food and drink as being vulnerable to the measures announced by the White House. Trump’s administration aims to retaliate against countries not just for trade tariffs, but also for perceived “unfair or harmful acts, policies or practices.” The rationale behind Trump’s tariff stance is whether a country has a trade surplus with the US, aiming to protect American businesses and boost manufacturing.
Despite discrepancies in data collection, both the UK and US claim to have trade surpluses with one another. The introduction of VAT into the tariff equation has complicated matters, with Trump citing it as an “unfair, discriminatory, or extraterritorial tax.” George Saravelos from Deutsche Bank suggests that applying reciprocal tariffs on a VAT basis could result in British businesses facing charges of 21% when exporting to the US. William Bain from the BCC acknowledges the UK’s relative insulation due to lower exports to the US compared to other countries but warns of increased costs and uncertainty that may disrupt established trade norms.
Fiona Conor, from Trust Electric Heating, plans to expand into the US market but is wary of passing on potential tariff costs to customers. She is considering moving production to the US to take advantage of tax breaks for innovative companies. Conor believes the UK government should be strong negotiators, emphasizing the need to strengthen the partnership with the US. Meanwhile, Paul Ashworth of Capital Economics notes the contrasting views on VAT, with Trump’s advisers seeing it as a form of discriminatory tariff. Trump’s shift towards country-specific tariffs rather than universal taxes on all imports could have widespread implications.
As a tax on imports collected by governments, tariffs are often used to protect domestic sectors from foreign competition. However, higher costs for consumers can result if importing companies pass on tariff expenses rather than absorbing them. Caroline Ramsay from law firm TLT finds it challenging to predict the impact of Trump’s recent announcement on the UK, highlighting the need for fair assessments. While the UK government contemplates its response, Pat McFadden urges a cautious approach to potential trade conflicts
Read the full article from The BBC here: Read More
