The re-election of Donald Trump could reshape global dynamics, particularly in trade, energy, and environmental policy. Amongst the new president’s ‘America First’ policies are proposals for the implementation of substantial tariffs, including a 60% levy on Chinese goods and up to a 20% tariff on imports from other countries.

If implemented, these policies could pose challenges for major exporting economies worldwide, including the UK. Cebr analysis indicates that a scenario in which the US enacts a 20% tariff on all imports and a 60% tariff on imports from China – without retaliation – could reduce the UK economy by 0.9% by the end of the Trump administration. Estimates from the National Institute of Economic and Social Research (NIESR) suggest that 10% tariffs could cut UK economic growth by 0.7 percentage points.[1]

Key exporting sectors to the US, such as cars, machinery and pharmaceuticals, may encounter substantial challenges in this evolving trade landscape. Retaliatory action against the US also poses upside risks to energy commodity prices. During Trump’s first term, the Brent-WTI price differential peaked at $7.34 per barrel in 2019, roughly a 118% increase from the start of his administration, despite a drive to boost domestic oil and gas production.[2] This was largely driven by buyers’ reluctance to purchase US energy exports.

However, shifts in global energy dynamics mean significant oil price rises are less likely this time around. China, once a major importer of US energy commodities, now sources discounted supplies from Russia, while its domestic economic slowdown has dampened its energy demand. OPEC also has spare production capacity, given it is currently implementing an output cut of 2.2 million barrels a day to support prices.[3]

Seemingly, the clearest path for the UK to avoid Trump tariffs would be to agree to a Free Trade Agreement. Indeed, Trump pursued a deal much more proactively during his first term as President than Biden. Such a deal would be doubly powerful, not only by reducing existing trade barriers but also by avoiding the new wide-ranging tariff, making the UK a cheaper source of goods than those economies that are hit with the tariff. Unfortunately, the major sticking point to a deal remains food standards, and tariffs may be used to pressure the UK to accept US demands in this regard.

As tariffs are paid by the US importer, most of that cost would likely be passed on to the consumer. In a scenario with no retaliation, this would likely lead to divergence in monetary policy between the US and other Western economies and a stronger dollar. While this would reduce some of the impact of higher tariffs, it would also make importing US goods more expensive for UK businesses. However, the effect on inflation in the UK would likely be negligible, though if the UK retaliated, the impact on inflation would be substantial.

Although tariffs generally pose economic risks to the UK, the new Trump administration could also present opportunities beyond those associated with a Free Trade Agreement. For instance, the UK has an opportunity to bolster its position as a leader in green technology by capitalising on global shifts toward clean energy investment and the likely lower prioritisation of this area amongst the Trump administration.

The Trump administration’s proposed environmental policies, including a possible rollback of the Inflation Reduction Act (IRA), could open opportunities for the UK to attract clean tech investments and accelerate green growth.[4] While the EU has countered the IRA with its €250 billion Green Deal, the UK risks falling behind further in the global clean tech race without a more ambitious and modern green policy than it currently possesses.

However, the UK’s post-Brexit regulatory flexibility offers a unique chance to develop a dynamic, forward-looking framework that positions it as a global leader in clean tech innovation and investment, especially if US policy shifts create a vacuum in the sector. To that end, the Chancellor faces a pivotal period to act on her pro-growth agenda and position the UK as a competitive destination for investment.

Ultimately, while US tariffs and rising protectionism pose challenges, other proposals under a new Trump administration also present opportunities for the UK to adapt and thrive. Without strengthening its approach, the UK risks taking all the pain associated with a Trump presidency without realising the potential gain.

[1] NIESR (2024) – The effects of higher US tariffs

[2] Cebr analysis (Macrobond)

[3] Reuters (2024) – Oil jumps nearly 3% after OPEC+ delays output hike, US election in focus

[4] Politico (2024) – Trump vows to pull back climate law’s unspent dollars

For more information contact:

Sara Pineros, Economist – spineros@cebr.com – 020 7324 2872

Cebr is an independent London-based economic consultancy specialising in economic impact assessment, macroeconomic forecasting and thought leadership. For more information on this report, or if you are interested in commissioning research with Cebr, please contact us using our enquiries page.