Abdelrahman
Title: Rising Concerns Over US Trade Taxes: Implications for the UK
Byline: Michael Race, Business Reporter, BBC News
Image Credit: Getty Images
Recent developments have sparked alarm in the UK regarding potential increases in US trade tariffs, following President Donald Trump’s announcement targeting Value Added Tax (VAT) as part of a broader trade strategy.
Trump has directed his team to create specific "reciprocal tariffs," which would impose fees equivalent to tariffs levied on American exports by various countries. This unexpected move has raised concerns about its impact on British industries, previously thought to be less vulnerable to tariffs compared to others.
Analysts warn that the UK could face tariffs exceeding 20%, potentially affecting relationships not only with the US but also with the European Union.
The British Chambers of Commerce (BCC) has highlighted sectors like automobiles, pharmaceuticals, and food and beverages as particularly at risk due to these newly announced measures from the White House. This comprehensive announcement included threats of retaliation not just over trade tariffs but also regarding perceived "unfair or harmful acts, policies, or practices."
Historically, Trump has justified the imposition of tariffs based on whether a country enjoys a trade surplus with the US—essentially, if it exports more than it imports from the US. This tariff strategy aligns with Trump’s goal of bolstering American businesses and domestic manufacturing.
While both the US and the UK claim to maintain trade surpluses with one another due to discrepancies in data collection, the uncertainty surrounding Trump’s decision on whether to exempt the UK from these emerging tariffs complicates the situation. Trump’s latest statements labeled VAT as an "unfair, discriminatory, or extraterritorial tax."
In the UK, VAT represents the tax charged on goods and services, with a standard rate of 20% applied irrespective of whether the items are imported. George Saravelos, Global Head of FX Research at Deutsche Bank, cautioned that if the US combines tariffs with VAT, British exporters could see costs rise to 21%.
He noted that if these reciprocal tariffs were dictated by VAT, European countries might face even steeper rates. William Bain, head of trade policy at the BCC, acknowledged that while the UK had some "insulation" due to its lower export volume to the US compared to other nations, these proposals could indeed "increase costs and uncertainty" and disrupt established trade policies.
Furthermore, Paul Ashworth, Chief UK Economist for Capital Economics, argued that many would view VAT as a non-discriminatory tax since it applies universally to all goods, whether originating domestically or from abroad. However, one of Trump’s advisors maintained that, given a lower average sales tax in the US at the state level, VAT constitutes a "form of discriminatory tariff."
As the landscape evolves, it seems that Trump may now prefer imposing tariffs on a "country-by-country" basis rather than applying a blanket tax on all imports.
Unpacking the Potential Impact
Tariffs, which are taxes on imported goods, are typically used by governments to shield specific industries from international competition. However, such protections can lead to increased prices for consumers if importing companies pass on the costs rather than absorbing them or reducing their stock.
Caroline Ramsay, partner and head of international trade at TLT, emphasized the unpredictability surrounding the implications of this recent announcement for the UK. She pointed out that the term "reciprocal" may not mean what many initially interpret, as the US will evaluate what it perceives as fair.
Mr. Bain stressed the importance of the UK government engaging in negotiations with Trump to avoid being drawn into retaliatory tariffs. Meanwhile, senior UK government official Pat McFadden indicated that the government would take a cautious approach, assessing the situation before taking action: "The most sensible thing to do with all of these announcements is to digest them, see if they actually come to pass, and then decide what you do."
This article addresses the latest unfolding trade developments between the UK and US, taking a closer look at the potential ramifications for British businesses and the broader economic landscape.
