Janice R. Andrews
Britain could face a more severe economic blow than China from Donald Trump’s latest trade war, experts warn. The US President has pledged to impose “reciprocal tariffs” on countries charging American companies what he deems “unfair” taxes, including value-added tax (VAT). With the UK’s VAT rate at 20%—higher than many other nations—British exports to the US could be hit with a staggering 24% levy, compared to China’s 10% tariff.
This move could deal a £24 billion blow to Britain’s already struggling economy, undermining the government’s efforts to spur growth. Analysts at Capital Economics highlight that the combination of VAT and tariffs would disproportionately affect the UK, as its VAT rates exceed those in China and other trading partners.
Trump’s aggressive trade policies have already seen 25% tariffs on steel and aluminium imports, and his latest threat targets VAT systems globally. Allie Renison, a former UK business policy adviser, noted that while the EU is Trump’s primary target, the UK risks being collateral damage. “It’s the EU that Trump is thinking about in targeting VAT, but the UK risks getting caught up in the crosshairs,” she said.
Despite the looming threat, Labour ministers have refrained from criticizing Trump’s plans or announcing retaliatory measures. Cabinet Office minister Pat McFadden stated the government would not “overreact” but instead “wait and see” if the tariffs materialize. Similarly, Science Secretary Peter Kyle emphasized a “cool, clear look at what’s in the national interest” before responding.
In contrast, the EU has reacted sharply to Trump’s threats. European Commission President Ursula von der Leyen condemned the move, stating, “Trade wars and punitive tariffs make no sense,” and warning that “unjustified tariffs on the EU will not go unanswered.”
Amid the escalating tensions, Prime Minister Sir Keir Starmer is set to visit the White House later this month, with hopes of mitigating the tariff threat. Starmer recently spoke with Trump, discussing the President’s forthcoming visit to the US and the special relationship between the two nations.
The ripple effects of Trump’s tariffs could extend beyond government negotiations, impacting consumers and businesses alike. Luxury brand Hermès, known for its iconic Birkin bags, has already announced plans to pass on the cost of US tariffs to shoppers. With Birkin bags starting at £10,000, wealthy consumers may soon face even higher prices. Axel Dumas, Hermès executive chairman, stated, “We’ll adapt to tariffs, and raise prices accordingly,” confident that customers will continue to pay a premium for the brand’s coveted status.
As the UK braces for potential economic fallout, the government faces mounting pressure to navigate Trump’s trade war without exacerbating the nation’s financial challenges. With VAT at the heart of the dispute, Britain’s economic resilience will be tested in the coming months.
