Cebr analysis shows that over £1.9 billion worth of UK exports have been affected by US tariffs on China and the EU so far this year. With further tariffs on China looking likely, the value of UK goods affected could rise to up to £3.4 billion.
US tariffs affect the UK directly through the 25% steel tariff and 10% aluminium tariff placed on the EU in May. Together, these affect UK goods worth £389 million per year. However, a far greater impact on the UK comes through the escalating US-China trade war. Approximately £3 billion worth of Chinese exports to the US are sourced from goods exported from the UK, of which around half have been affected by the three rounds of US tariffs on China which have occurred so far. However, in the most recent round of the dispute, President Trump warned that if China retaliated, then nearly all goods exported from China to the US could face additional duties. As China did indeed retaliate, the ball is back in Trump’s court.
The negative impact of global protectionism is starting to take its toll on global trade, as UK goods exports growth slowed to 1.9% year-on-year in Q2, down from 3.7% in Q1 and 14.2% in Q2 2017.
Further to the reduced international demand for British goods directly and through global value chains, consumer confidence and financial markets are particularly exposed to the escalation of protectionism across the globe. We have seen confidence react, with the YouGov/Cebr UK consumer confidence measure falling notably in March, the month when Trump first announced the steel and aluminium tariffs. Stock markets have also been affected, as on 22nd March the FTSE 100 fell by 1.2% compared to the day before, due to Trump’s announcement of tariffs on $50bn worth Chinese goods. Since then, last week’s announcement of duties on $200bn worth of Chinese goods had less of an effect on equities, since it was already priced in by market players, though further escalations of the trade war are likely to have a negative impact.
In the UK, car manufacturers will feel the impact of the trade war strongly, since the global nature of car production often means that components cross many borders before the final car is assembled. If each element faces a tariff at border crossings, costs will accumulate along supply chains. The fall in profitability will hit the UK economy, since the motor industry is responsible for 12% of UK goods exports. [1] Daimler has already announced that the tariffs on cars exported from the USA to China contributed to profits falling from €2.5bn in Q2 2017 to €1.8bn in Q2 2018.
And yet, we can hope for a better deal. Last week saw President Trump strike his first trade deal, allowing South Korea tariff exemptions in exchange for permitting 50,000 vehicles annually to enter South Korea that meet U.S. safety standards, rather than Korean safety standards. The deal implies that the President believes US exporters are held back from global success by unfair trading practices, such as strict health and safely regulations on imports by other countries. However, US car-makers have not even been meeting the 25,000 annual quota previously stipulated by the Koreans, suggesting that US cars lack a competitive edge in Korea, rather than being disadvantaged by quotas. If the EU or the UK post-Brexit can appeal to Trump in the right way, a deal to limit protectionism against British steel and aluminium is possible.
[1] https://www.smmt.co.uk/industry-topics/uk-automotive/
Contact: Josie Dent, jdent@cebr.com 020 732 2864