Expert Comment
Donald Trump's Tariffs: Effects on UK Markets
Irina Surdu-Nardella, Professor of International Business and Strategy at Warwick Business School, said:
US first, UK second?
There is a lot of speculation around the effects of U.S. imposing new tariffs on trade with the European Union and, implicitly, the UK. These speculations fuel the uncertainty that already defines geo-political relations and – unsurprisingly - have led to an immediate drop in U.S. and EU stocks. Yet, is this so? In reality, the market almost always overreacts. It is unsurprising that such announcements tend to be received with a lot of negativity given the uncertainty that they may create such as trickle down effects on inflation and higher cost of borrowing.
In reality, the effects on the UK market would be relatively reduced and limited to industries such as fishing and mining which are subject to tariffs. The service-focused nature of the UK economy shields it significantly from the consequences of tariffs. Service sectors which constitute most UK exports to the US are not subject to these announced tariffs. Tariffs are particularly detrimental to industries with complex supply chains, where goods cross the border multiple times as firms seek to turn inputs into final goods. Again, this is not the case of UK markets which mainly exports banking and consultancy services to the US.
The UK is, however, going to be expected to ‘pick a side’. Research conducted with colleagues from WBS on inflows of investment into the UK indicates that, whilst most projects invested come from U.S. firms, the most capital expenditure allocated to foreign UK projects comes from the EU. So, there is a real tension there in terms of which side the labour party will pick. The reality is that the EU countries will still seek to sell to the UK consumer whose willingness to pay remains high compared to that of other European nations. In the meantime, it may prove that separation from the EU makes the UK better positioned to focus on strengthening trade relations with the US in the areas where the UK is most focused: defense and energy.