How badly will Trump’s tariffs hurt Britain?

If you think the election of Donald Trump for a second term as US president will mean little or nothing to your personal finances, think again.

Trump campaigned and won the promise of a trade war with the world. In order to boost American manufacturing, he wants to put 60% tariffs on all Chinese imports and a minimum of 10% tariffs, or import taxes, on the rest of the world. Despite the special relationship, that includes us. Much of the world will doubtless retaliate in kind.

Since 15% of our trade is with the USA, the new universal tariffs that Trump is proposing would be a disaster for the UK. Two-thirds of our exports are services; business and financial service exports alone totalled £54 billion last year and these will be exempt – although Trump could still try to impose some non-tariff barriers here, like adding in the need for costly new licences.

Even if he does not, we still export a lot of physical stuff to the US – luxury cars, whisky, food, aerospace products and pharmaceuticals. In the last 12 months we have sent £8.4 billion worth of cars to the States, and £8.2 billion of drugs.

A 10% tariff on all those products and many more is going to damage those sectors and also what is now just a small regional economy on the edge of Europe. We can no longer rely on the heft of the EU to try to threaten the US with serious counter-tariffs and cushion us from some of the pain. Sending Nigel Farage over for a session of serious brown-nosing just isn’t the same.

Trump’s re-election is one more reason Brexit is looking like an increasingly dumb policy. It has made the UK an easy victim for Don The Con. No wonder he backed it.

The National Institute of Economic and Social Research (NIESR) think tank has been researching what the Trump tariffs would mean for the world economy. The results are terrifying.

The biggest victim would be the USA itself, losing 4% of GDP in two years, with inflation likely to soar by up to 5% and interest rates rising too in response. China would lose 1% of its growth.

For the UK, it calculates that a trade war would reduce UK growth by 0.7% in the first year and 0.5% in the second. Inflation could be 3-4% points higher and interest rates 2-3% higher.

US consumers who have voted for Trump partly to punish the Democrats for failing to control rising food prices would be horrified if those levels of inflation came to pass. They would be devastating in the UK too.

But the cut in growth must also be viewed with horror. NIESR’s numbers would pretty much halve even the anaemic rates of growth we are looking at pst-Budget. It would be a disastrous result for a new Labour which is staking pretty much everything on growing faster than before.

The hit is large for us because “the UK is a small, open economy and would be one of the countries most affected,” Ahmet Kaya an economist at the NIESR says.

Trump rambled endlessly during the election campaign about how high these tariffs would be, sometimes threatening to target individual firms, sometimes threatening unlimited tariffs to slash American imports. He has even threatened tariffs on countries like Mexico, with which, ironically, he negotiated a free trade deal during his last presidency.

Some of his supporters say this is just a negotiating strategy and we had better hope that they are right. But even if it is a strategy it is a very stupid one, because the confusion and doubt it spreads are very damaging in their own right. We cannot assume that is really the case and need to prepare accordingly.

As the Peterson Institute, a Washington based economic think tank, puts it, the very fact that Trump has rambled so often and so much about this subject means no one can be quite sure what he will do, but “The bottom line: The effect of the tariffs imposed in a second Trump presidency is incalculable. The damage to the US economy would also be incalculable, except in a later damage assessment. By then it would be too late.”

The US is still the most dynamic, largest, and important economy in the world, and it has just elected an economic moron. The USA has been one of the largest winners ever from international trade, but its new president is an isolationist idiot.

The last time anyone tried anything this stupid was when America reacted to the Great Depression by putting tariffs on imports. The subsequent trade war cost the USA 67% of its trade. It took ten years and a world war to revitalise its economy.

The post-war economic order was designed to stop that stupidity from ever happening again. Trump appears hell-bent on destroying that system, and dragging the world back to the 1930s. There is very little, if anything anyone can do to stop him now.