Allianz Trade highlights a potential significant impact on the UK manufacturing sector due to a prolonged US-China trade conflict.
- An escalation in US tariffs to 60% on Chinese goods could detrimentally affect the US economy and slow global trade growth.
- A moderate tariff increase might still impact UK exports negatively, hindering growth by approximately £2.2 billion over two years.
- Despite concerns, Capital Economics suggests the UK’s direct exposure to potential tariffs remains limited due to balanced trade.
- The impact on UK GDP could be negligible, with potential offsets from a weaker pound enhancing competitiveness.
Allianz Trade has issued a caution regarding a possible severe impact on the UK’s manufacturing sector stemming from an extended trade conflict between the United States and China. The organisation notes that raising US tariffs to 60% on all Chinese goods, along with 10% on imports from the rest of the world, could lead to significant economic challenges. However, such a scenario is considered improbable due to expected adverse effects, including a predicted 1.2 percentage point decrease in US GDP growth and a 0.6 percentage point inflation increase by 2026. Additionally, global trade might witness a growth reduction of up to 2.4 percentage points under these conditions.
Under a more moderate tariff scenario, where existing US tariffs on Chinese imports rise from 13% to 25%, and smaller increases of 5% are applied to other countries (excluding Mexico and Canada), UK export growth could be hindered by approximately £2.2 billion over two years. Allianz Trade also anticipates a 0.6 percentage point reduction in global trade growth.
Contrary to Allianz Trade’s perspective, Capital Economics provides an optimistic outlook, indicating the UK’s limited vulnerability to potential Trump-era tariffs. Unlike China, Mexico, or the European Union, the UK maintains a balanced trade in goods with the US. UK services exports, which are twice the value of goods exports, are also unlikely to be affected by these tariffs.
Capital Economics further estimates that a hypothetical 10% tariff on all UK goods exported to the US would have a minimal effect on UK GDP, estimating variations between -0.1% and +0.1%. This projection considers the likely exemption of services exports and the compensating effect of a weaker pound, which could make UK goods more competitive in the US market.
Despite potential tariff increases and their ramifications, the UK’s risk exposure appears mitigated by balanced trade and potential offsets in currency valuation.
