Trump tariffs – how UK businesses looking to grow through international trade can remain hopeful

Throughout his presidency campaign, Donald Trump proposed introducing tariffs of 10 to 20 percent on all US imports, and even higher tariffs on imports coming from China and Mexico. Now he is due to take office in the new year, UK businesses currently exporting or looking to start need to be aware of this prospect.

News of such tariffs has – understandably - generated concerns over the UK's international trade position, specifically in the pharmaceutical, manufacturing and engineering sectors. Reports already suggest bubbling trade wars and economic downturn for the UK.

But Oxford Economics expect that at worse, tariffs will reduce economic growth by just 0.2 percent – meaning the scope for UK businesses to expand via exporting is still a realistic and worthwhile possibility.

It leaves a pair of important questions. Can the 'special relationship' between the US and UK help collaborate and avoid a trade war? And are UK businesses ready to work and expand differently when it comes to international trade?

A benefit of having Trump back in office is knowing the character and business mogul he is. His first presidency was a learning curve for international trade; the pendulum swinging in the Republican's favour is something UK businesses can possibly use to their advantage.

What are these tariffs and will they happen?

Tariffs are taxes imposed by a government on the import and/or export of goods. The US currently has a trade-weighted average import tariff rate of 2 percent on industrial goods, so the possibility of this being multiplied by at least five is concerning.

Will Trump go ahead with his tariff proposals? The global feeling in the media is probably.

Trump is generally a man of his word when it comes to tariffs. For example, having called the North American Free Trade Agreement (Nafta) "a disaster" in his first term, Trump subsequently entered the US-Mexico-Canada Agreement to replace it.

The investment market appears to think the contrary to the general media. The FTSE 100 surged following Trump's re-election, bitcoin re-gained its 2013 trajectory, and the dollar rose; a picture that doesn't correlate with decreasing global trade.

Some believe the UK may be exempt from the proposed tariffs or that the trade deal which was in the works with Biden may be revitalised. Even if this is unlikely, there is the possibility the US will prioritise tariffs on countries which it has larger trade deficits with.

From the perspective of the US, the UK is a smaller trading partner which imports more goods than it exports, making it less of a tariff target. Regardless of the US Supreme Court's ruling in Loper Bright Enterprises v. Raimondo to end the concept of 'Chevron deference' and the US Constitution granting the power to impose tariffs to Congress, not the president in Article 1, Section 8, Trump will face little barriers in making his aims become reality.

The Supreme Court are reluctant to get involved in reviewing presidential trade actions (evidenced by Maple Leaf Fish Co. v. United States) and Trump's ability to rely on Section 232 of the Trade Expansion Act 1962 and a raft of other legislation creates few legal obstacles.

Re-direction of trade

UK suppliers have an opportunity to fill the shoes of their international counterparts. Given Trump has threatened to impose 60 – 100 percent tariffs on China and Mexico, UK business could benefit from China and Mexico's misfortune, providing they remain agile to change.

The UK, China, and Mexico each specialise in exporting certain goods. Media reports claim electrical, mining, and petroleum sectors will be hit in the UK if tariffs are imposed, but despite the concerns this may bring, there is scope for growth and expansion for UK businesses.

If the US imports products from Mexico or China, who mainly export cars and electronics respectively, the retail prices of such will sky-rocket. The UK could become that alternative supplier if trade is re-directed to lesser-tariffed nations.

Kamala Harris warned Trump's tariffs would represent a $3,900 sales tax on Americans. UK businesses can utilise this; from 2021 to 2022, the value of exported UK goods increased by £66.2 billion, partly driven because of tariffs placed on competitors, making the UK a more attractive proposition.

With a shift away from Mexico and China, UK businesses exporting to the US may get lesser profit margins per product, but higher volume orders - nullifying to some extent the tariff losses. A reduction in market share for these two global powerhouses creates a void UK business can fill, especially in sectors which China and Mexico are leaders in.

Utilising UK supply chains

The UK is a serious player in global supply chain networks thanks to its location, size, and reputation. US businesses may find UK supply chains reliable as they look for alternative suppliers to avoid increased costs off the back of higher tariff-imposed nations. Innovation is playing a pivotal role in the UK manufacturing sector and the digitalisation of this and similar sectors could make the UK an attractive proposition for US businesses.

As the US evolves and their needs develop, UK businesses can expand at an equal rate by meeting technologically advanced demand. There is a real possibility for the UK to capitalise in this potential gap in the supply chain market.

The expansion of the UK's service industry

One of the foundations of Make America Great Again is for US citizens to rely on US businesses and home-grown products, thereby using global trade partners on a less frequent basis (which an imposition of tariffs would certainly do). The UK is in a fortunate position in that almost 70% of the UK's exports to the US in 2024 (up to September) were services which are not subject to tariffs.

If the volume and value of physical goods exported to the US decreases, and the loopholes to export become more technical, not only will the demand for financial and consultancy services increase to manage these challenges but invite a host of further service possibilities.

What should UK businesses be doing now?

There will, undoubtedly, be change within international trade. But the UK should remain positive until they are given a clear reason not to be. Tariffs are one of many of Trump's proposed policies. The pledge to reduce the corporate tax rate from 21 to 15 percent for businesses that manufacture in the US could make expanding to the US an attractive proposition for UK businesses and worthy of consideration.

Womble Bond Dickinson are an international law firm with 8 offices in the UK and 24 offices in the US, many located at key international ports. The firm's partnership with customs consultancy experts Barbourne Brook allows it to advise UK businesses on implementing the correct legal measures when expanding into new markets.

This article was also authored by Ian Wildish, Solicitor at Womble Bond Dickinson.