In a groundbreaking shift, American trade policy has undergone significant changes following the recent announcements made by Donald Trump. On April 2, Trump declared the implementation of what he termed reciprocal tariffs, dubbing it "liberation day." This announcement sent shockwaves through the global trading system and financial markets alike. Just a week later, on April 9, a 90-day pause on some of these tariffs initiated a relief rally in stock markets. But where does this leave the current state of US trade, and what implications does it hold for global trade?
The recently announced pause applies only to certain new tariffs—specifically, taxes on imports introduced by Trump on April 2. While the minimum 10% tariff rate went into effect on April 5 for goods from all countries, including the UK, there are some exemptions, notably for pharmaceuticals and microchips. Nonetheless, this 10% tariff represents a major shift in America’s trading relations globally. For China, the situation is even more severe, as the tariff rate will not decrease but will instead rise to 125%, with an additional 20% linked to fentanyl imports.
The pause provides temporary relief for 59 other territories, suspending rates above 10% until July. This includes high tariffs of 46% on Vietnam, 44% on Sri Lanka, and 20% on the European Union. For nations like Vietnam, which relies heavily on exports to the US—accounting for approximately 30% of its economy—the potential impact of a 46% tariff could have plunged the country into recession. However, these countries will still be subject to the new 10% minimum tariff rate, which is a significant change from the previously lower tariffs they enjoyed.
Countries like Australia and South Korea, which once benefited from free trade agreements with the US, will also feel the impact of this new tariff regime. The unilateral withdrawal from these agreements marks a substantial break in their trading relationships with America, as they too will now be subjected to the 10% tariff.
Furthermore, other tariffs announced by Trump upon his return to office remain unaffected by the recent pause. These include:
- 25% tariffs on all car imports to America, including those from the UK.
- 25% tariffs on steel and aluminum imports, affecting products made from these metals.
- 25% tariffs on various imports from Mexico and Canada.
Economists caution against overestimating the impact of the tariff pause on overall US trade policy. Bloomberg Economics indicates that the average tariff on US imports was projected to rise to 27% before the pause, the highest in a century. Even after the pause, this figure is expected to remain elevated at 24%.
Most economists agree that the current state of US trade policy represents a significant shift that could have detrimental effects on the global economy. The ongoing trade conflict with China is anticipated to exacerbate this damage. The International Monetary Fund has projected that by 2025, the US and China will account for around 43% of the global economy. A slowdown in these two major economies due to trade tensions will inevitably have a ripple effect on other nations.
Experts also warn that the uncertainty introduced by Trump's pause may further undermine the global economy, potentially stifling corporate investment worldwide. This unpredictable trade environment poses challenges for businesses and economies across the globe.
Prior to the tariff pause, there were hopes that the UK could benefit from the new round of tariffs. The UK's relatively lower tariff of 10% could have encouraged multinational companies to shift production to Britain instead of the EU, which faces a 20% tariff for exports to the US. However, with the EU now subjected to the same 10% tariff as the UK, this incentive has diminished.
While the UK government is optimistic about negotiating a free trade deal with the US to eliminate the 10% tariff, it is important to note that the majority of UK exports to the US are in services, which remain unaffected by these tariffs. Nevertheless, the UK now finds itself in the same position as many other countries regarding US tariff barriers on goods.
The UK continues to face a 25% tariff on aluminum and steel exports, as well as on products derived from these metals. In 2024, the UK exported approximately $720 million (£558 million) in raw steel and aluminum to the US, according to United Nations data. Additionally, research from the Global Trade Alert indicates that UK exports of metal products subjected to these new tariffs amounted to $2.9 billion in 2024. The UK is also affected by the new blanket 25% import tariff on cars, with car exports to the US valued at around $9 billion in 2024.
In conclusion, the recent developments in US trade policy have created a complex landscape for international trade, with significant implications for economies worldwide, including the UK.
