Why Britain has so far dodged Donald Trump’s tariffs
Summary
- And why it may continue to do so
Donald Trump’s trade officials are run off their feet. China was just the beginning. Since the start of February, the president has announced levies on global imports of aluminium and steel. Reciprocal tariffs, which will charge countries according to their own duties on American goods, and “non-tariff barriers" are set to follow. Allies have been menaced as much as adversaries. America’s closest neighbours, Canada and Mexico, have been bludgeoned by the threat of 25% levies, for the moment postponed after both agreed to boost security at the border.
Imagine for a moment that you were one of those exhausted officials. It might cross your mind that another friendly country—one often said to have a “special relationship" with America—ticks many of the same boxes as neighbours already caught in the cross-hairs.
A trade surplus with America? Check. Britain thinks it ran one of about £71bn ($88bn) in 2023, according to its Office for National Statistics (ONS), little different from Canada’s. Counting on American trade? Check. Like Canada and Mexico, Britain’s largest trading partner is the United States. Headed by a MAGA-sceptic? Check. Mr Trump’s praise that Sir Keir Starmer is doing a “very good job" will fool no one that the two have much in common. And since the wider MAGA-crowd find plenty to grumble about politically regarding Britain, tariffs might be seen as a useful cudgel. In his recent speech to European leaders assembled in Munich, J.D. Vance, America’s vice-president, accosted Britain for inadequately protecting free speech outside abortion clinics.
Yet when it comes to trade, Republicans are routinely enthusiastic about the Anglo-American partnership. Robert Lighthizer, the US Trade Representative during Mr Trump’s first term, called relations with Britain “how trade is supposed to work". The man nominated for the post this time, Jamieson Greer, testified to Congress in 2023 that Britain was on his list of trading partners to focus on building market access with. The president himself is characteristically mercurial but tends to suggest it can all “be worked out" with America’s partner across the Atlantic.
British politicians might like to credit political nous if friendly ties with Washington continue. David Lammy, the foreign secretary, is replete with praise for the president—no longer a “deluded, dishonest, xenophobic, narcissistic" man, Mr Trump is now one of “incredible grace", says Mr Lammy. Peter Mandelson, famed for his political “dark arts" (and, as a former EU trade commissioner, no stranger to trade negotiation), has been installed as ambassador in Washington. Skilful diplomacy can no doubt help. But so, too, can economic fundamentals.
Start with the obvious. Anglo-American trade in goods is broadly balanced—and goods deficits are what seem to enrage Mr Trump. He blames them for hollowing out America’s industrial heartlands. The two countries have alternated between surplus and deficit (one of the reasons Mr Lighthizer said the trading relationship “may be the healthiest one in the world").
Still, a hefty deficit of any kind is typically anathema to MAGA tariff hawks. Here Britain is, unusually, helped by America’s bureaucrats. Due to the intricacies of totting up trade, the numbers calculated by each side differ. Whereas Britain’s ONS calculates a healthy trade surplus for the Brits, the Americans’ sums show the opposite. Its Bureau of Economic Analysis calculates a $14.5bn American surplus in total trade with Britain in 2023 (see chart 1). Unsurprisingly, when the topic of trade arises, Sir Keir and Rachel Reeves, the chancellor, are happy to echo Yankee wisdom rather than touting the numbers from their own mandarins.
Even without a focus on Britain, of course, Mr Trump’s broader policies may well do damage. A global levy on steel, set to begin in March, might cause minor ructions unless Britain can get an exemption (the ONS reckons it has a small bilateral surplus in that commodity). And if Mr Trump makes good on threats to impose charges on imports of cars, semiconductors and pharmaceuticals, they would hurt carmakers and drug firms, of which Britain has plenty. Worst of all is the Trump administration’s review of reciprocal tariffs. If it wrongly concludes that value-added tax, a consumption charge Britain levies at 20% on domestic and imported goods, should be viewed as a tariff, as Mr Trump has argued, Britain could be hit with retaliatory tariffs of 20% or more.
Suppose British efforts to win exemptions fail. It would probably still not be the disaster faced by some of those near the top of Mr Trump’s tariff hit-list. Whereas a 25% tariff could shrink Mexico’s economy by 2-4% this year alone, and do almost as much harm in Canada, similar tariffs would affect Britain less. The impact of a 20% tariff on all British goods would be less than 1% of GDP, calculates the Centre for Inclusive Trade Policy, a British think-tank. Exports would fall by around £22bn, a mere 2.6% of Britain’s total exports.
Geography matters. All else being equal, trade tends to decline with distance, as transport costs and other barriers grow. And nestled between America and continental Europe, Britain (unlike Canada and Mexico) has easy alternative markets for its goods. Britain sends only 13% of its exports to the United States, compared with over 75% for Canada and Mexico, according to the uk Trade Policy Observatory (see chart 2).
The share of those exports which the UKTPO counts as “vulnerable"—where over half are sent to America—is just 7%. The exhausted trade official might reluctantly conclude that the relationship is somewhat special after all.
