The UK economy is set to feel the indirect impact of new trade tariffs proposed by US President-elect Donald Trump, although it may not be directly targeted, according to UBS analysts.
While the main impact of these potential tariffs is expected to hit Europe and other key trading partners, the interconnected nature of global trade means that the British economy is not immune to side effects.
According to a UBS note, the UK’s small trade surplus with the US in goods of just £2.4 billion in 2023 makes it a less desirable target for Washington as a tariff target.
By contrast, the European Union recorded a much larger goods surplus of €177 billion with the US in the same year.
This makes the EU more likely to be the focus of targeted measures, especially as US trade policy under Trump is expected to be driven by a desire to reduce the bilateral trade deficit.
The UK’s trade position is also protected by a surplus in services, estimated at almost £69 billion in 2023. Unlike goods, services are not expected to be subject to new tariffs, providing little economic protection.
However, as UBS analysts warn, this relative immunity does not shield the UK from the wider economic impact of a tariff-driven slowdown in global trade.
While the UK may be spared direct tariffs, it remains closely tied to the fate of its trading partners. The EU, which remains Britain’s largest trading partner after Brexit, could be hit if US tariffs are imposed on European goods.
Such a slowdown would indirectly affect UK exports to the EU and other regions, creating indirect economic pressure. UBS warns that as a “small, open economy,” the UK is vulnerable to changing global trade dynamics.
While the UK-US trade relationship is generally strong, with minimal trade imbalances compared to other blocs, UBS analysts advise against complacency.
They argue that wider uncertainty about US trade policy could still affect business sentiment and investment decisions in the UK, even if tariffs do not directly affect British goods.
Analysts suggest that while tariffs may not be a top priority for the UK economy, their indirect impact could add to the challenges Britain faces in navigating a fragile global economic landscape.
For now, the UK's focus remains on mitigating the side effects of trade policy changes while continuing to leverage its strengths in the services sector to strengthen economic resilience.
