Sir Keir Starmer will convene senior ministers on Thursday to survey the global trade chaos unleashed by Donald Trump’s so-called “liberation day” tariffs, while breathing a sigh of relief that Britain was spared the worst.
Starmer’s allies argued the prime minister’s “calm-headed” diplomacy with Trump had been “vindicated” by the fact that Trump imposed a 10 per cent tariff on the UK, compared with a 20 per cent rate on the EU.
The rate Trump put on the UK, which has a balanced trade in goods with the US, was the minimum he levied on America’s trading partners. The likes of Australia, Brazil, Turkey and Singapore also received the lowest rate.
Starmer hopes to strike a trade deal with Trump to further cut that 10 per cent rate. But British officials recognise Trump has set in train powerful economic and political forces that could be hard to contain. “We’re waiting for the administration to come back down to earth,” said one.
João Vale de Almeida, the EU’s former ambassador to the UK, said one of Trump’s goals was to sow division between Britain and the rest of Europe and warned of the danger that he could succeed.
“The more concessions that Britain makes to the Americans, the harder it is for the EU to live with it,” he told the Financial Times. “The more you go to the American side, the more distance you create with us.”
Starmer has said he will not impose “knee-jerk” retaliatory tariffs on the US, even though the likes of Canada and the EU have responded in kind to previous rounds of Trump tariffs. The anti-Trump Liberal Democrats want Starmer to form a “united front” with Ottawa and Brussels.
Vale de Almeida said he was confident that Trump would ultimately cut Britain an even better deal on tariffs than the EU, which he said could create tensions if it caused a diversion of trade and investment.
Sam Lowe, trade policy lead at consultancy Flint Global, said one area of possible tension — and a potential economic boost for the UK — would be if companies relocated production to the UK to take advantage of better trading conditions with the US.
However, he warned that the uncertainty created by Trump reduced the prospects of such relocations. “If there is a differential that’s beneficial to the UK, the question investors will be asking is ‘how long does it last for?’,” he said.
Lowe added that rules requiring goods to be sufficiently produced in the UK in order to benefit from the lower US tariff should, in theory, prevent EU exporters simply shipping their finished goods to the US via the UK.
Any benefits to London from companies relocating production would likely be outweighed by the hit to £60bn of existing UK exports to US, and the economic drag on the UK’s already stagnant GDP growth from a global trade war — Starmer’s fiscal plans have a razor-thin margin for error.
Trade experts do not expect Britain — unlike the EU — to impose “anti-dumping” tariffs on surplus products that could flood world markets from China, Europe and other major manufacturing areas as a result of US tariffs diverting goods from the US market.
“Would we take anti-dumping measures? I doubt we would,” said Greg Hands, former Conservative trade minister. Britain’s economy relies less on domestic goods production than on consumer spending and services.
But Hands said Starmer could be faced with other problems arising from Trump’s tariffs that could complicate his efforts to “reset” relations with Brussels ahead of a UK/EU summit in May.
He said he could imagine a situation where US goods were cheaper in Britain than in the EU because of countermeasures imposed on Trump by Brussels. European consumers might head to London to buy US-made goods. Irish consumers might make a similar journey to Belfast.
“That might be good for the UK but it could lead to tensions,” he said, adding that French authorities might feel compelled to set up more customs checks for travellers returning from Britain.
“You could see how a certain Gallic narrative might arise about ‘perfidious Albion’ cutting its own deal with Trump,” Hands said.
Starmer will start to feel the political heat if his “cool-headed” response to Trump’s tariffs — notably his refusal to impose retaliatory measures — fails to deliver speedy new concessions from the US president.
Trade experts said the UK government’s decision not to announce retaliation against Trump tariffs made the UK an outlier. China, the EU and Canada have responded in kind to Trump’s tariffs thus far.
Creon Butler, head of the global economy at the Chatham House think-tank, said that while the UK had a difficult balance to strike as a small nation dependent on the US for its security, Starmer’s reticence risked inviting demands for further concessions from Washington.
“A number of countries — EU, China, Canada — have announced retaliation but then delayed the imposition. So there’s a way of doing it and not imposing the measures. The question, if you don’t retaliate, is ‘where do the demands stop?’,” he said.
Butler added that the UK’s offer to dilute the Digital Services Tax imposed on US tech giants also posed political risks for the Starmer administration, which is simultaneously imposing welfare cuts on the sick and disabled.
Michael Gasiorek, director of the UK Trade Policy Observatory at Sussex university, said any decision by Starmer to retaliate had to be weighed against any economic effect of tariffs imposed by the UK that would be negative — and likely have little effect.
“The UK does not have substantial economic leverage when it comes to trade in goods with the US, so I find it unlikely that UK retaliation would materially change the US position,” he said.
A “nuclear option” of threatening retaliation in financial services, where the UK has a surplus with the US and therefore could potentially have an impact, also risked leading to painful counter-retaliation given that 27 per cent of UK services exports go to the US.
“Given the vagaries and switches in US policy it seems sensible to me for now to ‘stay calm’ and see if a deal can be negotiated,” Gasiorek said.