Donald Trump’s threatened tariffs could hit UK trade with the US as badly as Brexit affected trade with the EU, a leading think tank has warned, as campaigners call for Sir Keir Starmer to protect the UK by urgently rebuilding ties with Europe.
The president-elect has threatened to impose tariffs of between 10 and 20 per cent on all imports to the US when he returns to the White House, with experts warning of a tit-for-tat global trade war that would fuel another spike in inflation.
And, in a bombshell report published today, the Resolution Foundation said the impact of Trump’s plans would hit UK firms as hard as the trade barriers that came into place after Brexit.
In a warning to Sir Keir ahead of Mr Trump’s inauguration next month, the Resolution Foundation said building closer ties with the EU “should remain a priority”, with 47 per cent of all UK exports heading for the bloc.
Its report noted that the impact on firms that export goods to the US under Mr Trump’s plans could be devastating, with 10 to 20 per cent tariffs on goods being roughly equivalent in scale to the non-tariff barriers that Brexit imposed on goods sales to the EU.
And it said if Mr Trump pursues “super-tariffs” on rivals such as China, leading to retaliation, “the knock-on effects could be darker still”.
“No longer part of a large trading bloc, the UK would then face sharp dilemmas in a scramble to retain access to overseas markets and its flow of imports,” the report said.
The picture is particularly stark for small traders, with goods sales to Europe among smaller businesses having fallen 30 per cent since Brexit – with 20,000 companies stopping exporting to the continent altogether.
Resolution Foundation senior economist Emily Fry said: “While Trump tariffs wouldn’t affect the UK economy as a whole as much as Brexit, their effect on firms who sell goods to the US could be stark.”
The report comes amid Sir Keir’s effort to reset relations with Brussels, after years of acrimony under the Conservatives. But in a major speech on Monday night, the PM rejected calls to prioritise the EU over the US under Mr Trump.
Addressing the Lord Mayor’s Banquet at Mansion House, the prime minister made it clear that he believes the choice being posed is a false one and that he can achieve closer relationships with both allies.
He added: “Against the backdrop of these dangerous times, the idea that we must choose between our allies, that somehow we’re with either America or Europe, is plain wrong. I reject it utterly.”
Former member of the European parliament Molly Scott Cato told The Independent that Britain had already engaged in the “economic self-harm” of Brexit, adding that “now we face an impact on a similar scale from Trump’s tariffs”.
The economist and vice chair of the European Movement UK added: “This report is a timely reminder that we need to end the silence around the costs of Brexit and start a conversation about how to reverse the damage as well as defending our businesses against Trump’s trade war.
“Reducing trade frictions is a useful start, but it is clear that our best protection would be taking our place as part of the powerful EU trading bloc and joining the customs union.”
And Naomi Smith, chief executive of campaign group Best for Britain, said: “Facing new trade tariffs from an unpredictable President-elect Trump, this report is right to recommend the government pursue a closer trading relationship with our European neighbours as an absolute priority.
“Breaking down Brexit barriers with our largest and closest market, through beneficial alignment, is essential to protecting our economic interests by bringing down costs for British businesses and consumers alike.”
The Resolution Foundation’s report also found that Brexit has driven a trade divide between Britain’s struggling goods sectors and its powerhouse services industries.
Firms working in areas like advertising, IT and consultancy have found it easier to work around Brexit than goods exporters who cannot avoid transport costs and border checks, the think tank said.
Goods exports have risen by just 0.3 per cent a year since 2019, far lower than the 4.2 per cent average increase for advanced economies; meanwhile, services exports have risen much faster than rivals – growing by 7.5 per cent a year since 2019.
Ms Fry added: “With the dust still settling on how Brexit has changed how firms trade, the threat of universal tariffs on goods by the president-elect risks widening this trade divide further.”
The prospect of tariffs being imposed by Mr Trump has led trade experts to warn that the UK needs to move closer to the EU.
Simon Sutcliffe, customs and excise duty partner at business advisory firm Blick Rothenberg, said: “Not since the 1930s with the Smoot-Hawley Act has the US considered such a protectionist trade policy. This leaves Keir Starmer with a dilemma. Who does he build closer trading ties with, the US or the EU?”
He added: “Keir Starmer’s manifesto states that he will build better relations with the EU. One of the biggest stumbling blocks in the UK’s trading relationship with the EU is the control and administration surrounding the movement of food products. Moving closer to the EU may allow development of a consistent and streamlined food policy which would reduce trade red tape and extra charges.”
Meanwhile, Britain’s leading trade expert Marco Forgione, director general of the Chartered Institute of Export and International Trade, has disputed claims a Trump trade war will necessarily be bad for the UK.
He said: “The UK will be low on Trump’s list of priorities for tariffs. It is clear he is mainly aiming at China and countries which want to de-dollarise. Also the EU is higher up on his target list because of his negative feelings towards it.
“The UK could get a special agreement even if it is just building on the memorandums of understanding with different states. Most of the UK exports to the US are services anyway.”
The Treasury was approached for comment.