US Tariffs on the UK

Keir's last-minute scramble has failed.

The recent imposition of trade tariffs by the United States on the United Kingdom has sparked significant concern regarding its potential impact on the UK economy. This article examines the nature of these tariffs, their anticipated effects on various sectors and the economic theories that help explain these dynamics.

Understanding the Tariffs

On April 2, 2025, Donald Trump announced the implementation of “reciprocal tariffs,” aiming to match the tariffs that other countries impose on U.S. products. This policy marks a significant shift from decades of trade practices and is expected to affect a wide range of imported goods, including steel, aluminium and vehicles. For the UK, these tariffs could be as high as 20%-25%, posing a substantial challenge to its export-driven industries. 

Projected Economic Impact on the UK

The Office for Budget Responsibility (OBR) has projected that these tariffs could lead to a 0.6% reduction in the UK’s Gross Domestic Product (GDP), equating to approximately £18 billion. This downturn is anticipated to result in tumbling stock markets, rising prices and potential shortages of goods. Additionally, Goldman Sachs has downgraded the UK’s economic growth forecast, citing concerns over the spillover effects of the tariffs. 

Sectoral Implications

The manufacturing sector is expected to be among the hardest hit. In March 2025, the S&P Global UK Purchasing Managers’ Index (PMI) for manufacturing fell to 44.9, the lowest since October 2023, indicating significant economic strain. New export orders have declined sharply, exacerbated by the impending U.S. tariffs and rising domestic costs. 

Economic Theories on Trade Tariffs

The imposition of tariffs can be analysed through various economic theories:

Protectionism: Tariffs are often used to protect domestic industries from foreign competition by making imported goods more expensive. While this can benefit domestic producers in the short term, it may lead to inefficiencies and higher prices for consumers.

Terms of Trade: By imposing tariffs, a country may attempt to improve its terms of trade—the ratio of export prices to import prices. However, this strategy can backfire if trading partners retaliate with their own tariffs, leading to a decrease in overall trade volume and potential welfare losses.

Retaliation and Trade Wars: Economic theory suggests that unilateral tariffs can provoke retaliatory measures from affected countries, escalating into trade wars that harm all parties involved. Such conflicts can lead to reduced international trade, inefficiencies and increased costs for consumers and producers alike.

Conclusion

The U.S. imposition of trade tariffs on the UK poses significant challenges to the British economy, particularly in export-oriented sectors like manufacturing. While economic theories provide frameworks to understand the potential impacts, the real-world consequences will depend on various factors, including the UK’s response, potential negotiations, Trump blindsided by one idea and the broader global trade environment. Labour Government will need to navigate these complexities to mitigate adverse effects and promote economic resilience, which they are struggling to do anyway.

Dee Singh Kothari is a senior partner in Kothari Partners 

Opinions expressed in this article are solely of the authors. The author nor Kothari Partner’s accept any liability for the incorrect use of the source data quoted/ used.

At Kothari Partners, we have worked with various UK and overseas listed and PE/ VC backed clients across various industries to consider how their business and finance services can bring them both cost reductions and performance improvement. Our approach is to help our clients understand their current situation, identify the value and decide on the scope, vision and set of strategies for what they could achieve for their business. We help plan their implementation and support them and deliver the solution/ change needed, so it is properly and permanently embedded in their organisation. We aim to help past and future clients by delivering high-quality work to their organisation, generate real efficiencies and free up time to support better business decisions.