Britain braces for a Trump tariff war

LONDON — Donald Trump thinks “tariff” is the most beautiful word in the English language. Britain’s new trade chief doesn’t see it that way.

Four months after taking on the trade portfolio in July’s landslide election, U.K. Business and Trade Secretary Jonathan Reynolds is already facing the prospect of a transformed landscape should Trump triumph in the U.S. election Tuesday.

“Any G7 trade minister like myself would be concerned about the talk of tariffs,” he told POLITICO. It’s something of an understatement.

The trade secretary could soon find himself fighting a trade war on multiple fronts if Donald Trump retakes the White House.

The Republican nominee has promised to impose a flat tariff of up to 20 percent on all U.S. imports, as well as 60 percent tariffs on goods from China, sparking fears of high inflation and a global economic slowdown.

The international impact of these trade policies is “incalculable,” according to a Peterson Institute analysis. But the blanket tariffs would hit billions of pounds of U.K. automotive, pharmaceutical and liquor exports.

While Reynolds stressed that the presidential election was “a decision for the American people” and the Labour government would “work with whoever wins,” he accepted the vote would be “a significant event for the global economy.”

And he hinted that if Britain was threatened with a trade war, it would be prepared to fight back.

‘Extremely well prepared’

In Whitehall, government officials have been busily preparing for different eventualities for months.

“We model every potential outcome as to what some of the campaign pledges might mean for an economy like ours,” Reynolds said. U.K. officials were “extremely well prepared,” he added.

Meanwhile, Prime Minister Keir Starmer’s top team has spent the period both before and after the U.K. election attempting to woo Trump and his team.

Days after Labour swept to power, Foreign Secretary David Lammy jetted off to meet Trump’s Republican allies on Capitol Hill as part of a plan to engage “with both sides of the aisle.”  

And Starmer and Lammy dined with Trump for two hours during their visit to New York for a United Nations summit in late September.

But diplomacy and Britain’s perceived “special relationship” with the U.S. would likely have little impact on Trump’s tariffs plans, said a senior U.S. business representative, granted anonymity to speak freely.

While Trump’s complaints about the perceived unfairness of China and the European Union’s trade surpluses with the U.S. do not extend to post-Brexit Britain in the same way, the U.K. could still find itself in the firing line, the business rep said.

“I hope that the Starmer government doesn’t rest too firmly on the laurels of the strength of the relationship and think ‘well, it’s not gonna apply to us — we don’t have to worry about it,’” they added. “They’re going to need to worry about it.”

A bargaining chip

Trump would use tariffs “to force other nations to the negotiating table,” wrote Brandon Barford, a former Republican U.S. Senate Committee on Banking staffer, in a July op-ed for POLITICO.

“It’s a bargaining chip,” Howard Lutnick, co-chair of Trump’s presidential transition team, told CNBC in September.

Ministers in Britain’s previous Conservative government prepared their own bargaining chip, laying the groundwork for a second Trump presidency by preparing to return to negotiations for a U.K-U.S. trade deal started under former Prime Minister Boris Johnson. Talks broke off after Joe Biden entered the White House in 2021.

“There has been work going on in the background about what would happen if Trump wanted to restart trade talks and how that would look,” a former government official, also granted anonymity to speak freely, said.

The Conservative government’s push for non-binding trade promotion pacts with individual U.S. states “was about that too, if, after Biden, there was once again an appetite to re-enter trade talks,” they added.

But the U.K. government’s red lines on U.S. access to the British healthcare system and refusal to accept American exports of chlorine-washed chicken or hormone-treated beef were stumbling blocks to a deal — even under Johnson.

If Trump starts a trade war, “I don’t think the U.K. has a choice but to retaliate,” the senior U.S. business representative said, adding that Starmer should be drawing up a list of tariffs to hit back to bring to the negotiating table.

EU diplomats told POLITICO the bloc had prepared “substantial retaliation” if Trump initiated a trade war. Other U.S. allies, including Canada, have also signaled they are prepared to draw up retaliatory measures.

Fearing escalation

It is “prudent and appropriate to prepare for those scenarios,” British trade chief Reynolds said, adding he did not want to be “specific” when asked if his department had prepared retaliatory tariffs.

“In any situation where you might be facing a difficult negotiation with any partner you need reciprocal things to be engaged in that conversation,” he said.

Reynolds doesn’t need to look too far back to see how events might play out.

After the first Trump administration slapped steel and aluminum tariffs on the EU in 2018, when Britain was still a member, Brussels retaliated with tariffs on everything from Harley Davidson motorcycles to Levi jeans and bourbon.

But firms on both sides of the Atlantic fear retaliation, said Duncan Edwards, CEO of the transatlantic business group BritishAmerican Business. “Even if one side imposes [tariffs], in my view, the other side should not,” he said. Retaliation would punish British consumers “by making things more expensive than they otherwise would be.”

Nevertheless, Trump’s moves would “be immediately felt by U.K. exporters,” said Aline Doussin, partner at the law firm Hogan Lovells and head of its international trade team in London. “The U.K. government, in coordination with stakeholders here in the U.K, should prepare for all scenarios possible.”

At the moment there is “no firm plan” that companies and the public have heard from the government about how it would respond, Doussin said. But retaliation from the U.K. could make things worse, she added.

“We have seen some trade escalation in the context of the previous [Trump] administration,” she added, warning that “the market agrees that mostly everybody loses in escalating tariff increases.”