Rising tensions in the trade relationship between the US and China could lead to significant economic consequences for the UK.
- Allianz Trade warns that a full-blown trade conflict could see UK exports to the tune of £8.5bn wiped out.
- Even moderate tariff increases could dent UK export growth by £2.2bn over the next two years.
- The UK’s balanced trade in goods with the US and strength in service exports may buffer some impacts.
- Experts highlight potential global trade disruptions, with slower growth and increased inflation risks.
The escalating trade tensions between the United States and China raise alarming prospects for the UK’s economy. According to Allianz Trade, should tariffs rise to 60 per cent for all goods, it could severely compromise the UK’s manufacturing sector. This scenario poses a significant threat, as UK exports could face a reduction of up to £8.5 billion.
Such a high-tariff scenario is viewed as unlikely by Allianz Trade, which notes the probable negative repercussions on the US economy, including an anticipated reduction in GDP growth by 1.2 percentage points and a corresponding inflation increase of 0.6 percentage points by 2026. In the event of moderate tariff increases, the UK might still confront challenges, including a potential £2.2 billion hit to export growth over a two-year period.
While the potential impacts on the UK could be substantial, Capital Economics provides an alternative perspective. The firm suggests that the direct effects might be limited due to the UK’s relatively balanced trade relationship with the US. UK service exports, which are significantly higher in value compared to goods exports, are less likely to be affected by tariffs. Moreover, any adverse impact might be partially offset by depreciation of the British pound, enhancing the competitiveness of UK goods in US markets.
The broader implications of heightened tariffs could extend to global trade, threatening to slow overall growth by 2.4 percentage points, as per reports. Even smaller hikes, such as increasing US tariffs on Chinese imports from 13 per cent to 25 per cent, could decelerate global trade growth by 0.6 percentage points. Analysts caution that such developments might disrupt economic stability and resilience on a wider scale.
These potential trade tensions between the US and China carry considerable risks for the UK’s exports and global economic stability.
