Should we fear Trumponomics? What tariffs could mean for the US, UK, EU, China and the world

Published

5 months ago

November 4, 2024

admin

There’s fear in some quarters of another Donald Trump presidency but will the economics be that bad?

Not a single vote has been counted but the policies of a possible second Trump presidency have already influenced financial markets.

The cost of US and UK borrowing – measured through 10-year revenue-raising instruments called bonds – has been upped as traders eyed the price-rising impact a Trump presidency could have on the world’s biggest economy.

If Trump clinches victory could we see global economic repercussions?

US election latest: Shock poll puts Harris ahead in Iowa

A signature policy of his – tariffs – could make things worse for US consumers, in turn hurting the world economy of which the UK is a part.

Precise detail on what tariffs Trump would apply on what goods and from where remains to be seen. He’s said all goods coming into the country could be slapped with a 10% tax.

Goods from China are going to be particularly hit with an anticipated 60% levy.

Why tariffs?

The hope is that by making imports more expensive goods made in the US will be more competitive and comparatively cheaper. More people would buy those things and life would be better for US producers, the thinking goes.

If US producers are doing well, they’ll hire more people, Trump expects. He’s calculating that more people working for US companies doing well will make for a strong economy and happy voters.

Parts of America have been severely impacted by factory closures as companies move to parts of the world with cheaper wages and operating costs.

This accelerated since the 1990s when the North American Free Trade Agreement (NAFTA) made it easier and cheaper to export to the US, reducing the incentive to produce in the country.

Blue-collar workers, traditionally not college-educated, lost and continue to lose out majorly from plant closures. These are the voters Trump is targeting and who form his base of support.

It’s worth noting Trump isn’t the only fan of tariffs with the Biden administration implementing them on Chinese electric cars, solar panels, steel and aluminium as it sought to protect the investment it had made in such industries from cheap and heavily subsidised goods.

What will the effect be?

China, unsurprisingly, will be levied the highest and experience the greatest direct strike.

The hit will be “notably negative”, according to analysis from the National Institute of Economic and Social Research (NIESR), a leading thinktank.

It will face short-term pressures on manufacturing and trade with its gross domestic product (GDP) – the measure of everything produced in the country – to fall about 1% a year for two years, NIESR says.

Economists at Capital Economics quantify the cost at about a 0.5% to 0.7% reduction in GDP.

The US

That said the effects will be felt most keenly by those living in the US who will pay more.

If usually cheap imported goods get pricier that probably will cause the overall rate of inflation to rise.

Here the knock-on influences emerge. Higher inflation will just mean more expensive borrowing through upped interest rates as the US central bank, known as the Fed, will act to reduce inflation.

There’s no mystery around how high interest rates can weigh on an economy, the literal goal of hiked rates is to suppress buying power and to take money out of the economy.

Fears of the US ending up in recession spooked stock markets and triggered a global sell-off just three months ago.

Stock prices can seem nebulous but they impact the value of most people’s pensions.

A recession isn’t predicted but the US economy will falter, NIESR says.

Economic growth in America, as measured by GDP, would decrease by around 1.3 to 1.8 percentage points over the next two years, depending on whether the countries it trades with retaliate, upping their own duties on US goods.

👉 Listen to Sky News Daily on your podcast app 👈

Worldwide reverberations

As tariffs make exporting less favourable exporters will simply export less, meaning less is produced and the worldwide economy slows.

The blow to the global economic output could be a 2% GDP drop after five years of Trump being in office, according to NIESR.

The consequences of Trump tariffs won’t just be short-term, NIESR forecasts, with global GDP still lower than it would have been without the imposition even in 15 years’ time.

Specific countries will be hit worse than others: Mexico and Canada for whom the US makes up roughly 80% and 50 % of trade, respectively will experience the greatest pain.

The EU

It doesn’t look too bad for the European Union (EU) by comparison and could even be good for the bloc, some say.

NIESR reckons the euro area will be less badly affected than the UK over five years but the immediate impact will be worse.

The good news first: if Trump doesn’t lean too heavily into tariffs and focuses more on cutting taxes to grow the economy that bump could lead to stronger demand for European goods, notwithstanding import levies, suggests research from economic advisory firm Oxford Economics.

The bad news: it won’t look so good if the US economy turns bad through more aggressive policies like high tariffs on more goods, the firm says. That would mean a “large” fall in European exports, it adds.

And finally, some neutral news: not even high tariffs would be inflationary for the continent, Oxford Economics expects. Reduced demand and lower goods prices would just offset the higher import costs, it says.

Another firm, Capital Economics, also isn’t too concerned about the European economy under Trump.

“Smaller than many fear”, is how it described the suspected short-term macroeconomic consequences.

What about the UK?

It’s got to be bad for the UK, right? The US is the country’s biggest trading partner after all, making up just under 20% of our trade

Again, not so. The UK doesn’t even make it into the top 10 worst-affected countries under NIESR’s research.

Capital Economics anticipates the knock would be small and maybe even positive, though inflation may be higher than if there were no second Trump administration.

But there’s no consensus on this point with NIESR forecasting GDP will be lower because of fewer exports and higher global interest rates.

This downturn would slow UK exports to other countries, NIESR says.

NIESR estimates UK GDP could be between 2.5% and 3% lower over five years and 0.7% lower in 2025. So instead of the 1.5% rate of GDP predicted by the IMF for next year, the economy would grow by 0.5%.

Business

Car manufacturers fined £461m for collusion

Published

11 hours ago

April 1, 2025

admin

Car manufacturers fined £461m for collusion

Major car manufacturers and two trade bodies are to pay a total of £461m for “colluding to restrict competition” over vehicle recycling, UK and European regulators have announced.

The UK’s Competition and Markets Authority (CMA) said they illegally agreed not to compete against one another when advertising what percentage of their cars can be recycled.

They also colluded to avoid paying third parties to recycle their customers’ scrap cars, the watchdog said.

Money latest: The many household bills rising today

It explained that those involved were BMW, Ford, Jaguar Land Rover, Peugeot Citroen, Mitsubishi, Nissan, Renault, Toyota, Vauxhall and Volkswagen.

Mercedes-Benz, was also party to the agreements, the CMA said, but it escaped a financial penalty because the German company alerted it to its participation.

The European Automobile Manufacturers’ Association (Acea) and the Society of Motor Manufacturers & Traders (SMMT) were also involved in the illegal agreements.

The CMA imposed a combined penalty of almost £78m while the European Commission handed out fines totalling €458m (£382.7m).

The penalties were announced at a time of wider turmoil for Europe’s car industry.

Manufacturers across the continent are bracing for the threatened impact of tariffs on all their exports to the United States as part of Donald Trump’s trade war.

Within the combined fine settlements of £77.7m issued by the CMA, Ford was to pay £18.5m, VW £14.8m, BMW £11.1m and Jaguar Land Rover £4.6m.

Lucilia Falsarella Pereira, senior director of competition enforcement at the CMA, said: “Agreeing with competitors the prices you’ll pay for a service or colluding to restrict competition is illegal and this can extend to how you advertise your products.

“This kind of collusion can limit consumers’ ability to make informed choices and lower the incentive for companies to invest in new initiatives.

“We recognise that competing businesses may want to work together to help the environment, in those cases our door is open to help them do so.”

Business

Customers ‘protected’ as household energy supplier exits market

Published

12 hours ago

April 1, 2025

admin

Customers 'protected' as household energy supplier exits market

A household energy supplier has failed, weeks after it attracted attention from regulators.

Rebel Energy, which has around 80,000 domestic customers and 10,000 others, had been the subject of a provisional order last month related to compliance with rules around renewable energy obligations.

The company’s website said it was “ceasing to trade” but gave no reason.

Money latest: The many household bills rising today

Industry watchdog Ofgem said on Tuesday that those affected by Rebel’s demise did not need to take any action and would be “protected”.

Customers, Ofgem said, would soon be appointed a new provider under its supplier of last resort (SoLR) mechanism.

This was deployed widely in 2021 when dozens of energy suppliers collapsed while failing to get to grips with a spike in wholesale energy costs.

The last supplier to go under was in July 2022.

Ofgem said new rules governing supplier business practices since then had bolstered resilience.

These include minimum capital requirements and the ringfencing of customer credit balances.

The exit from the market by Bedford-based Rebel was announced on the same day that the energy price cap rose again to take account of soaring wholesale costs between December and January.

Try the Sky News cost of living calculator

Tim Jarvis, director general for markets at Ofgem, said: “Rebel Energy customers do not need to worry, and I want to reassure them that they will not see any disruption to their energy supply, and any credit they may have on their accounts remains protected under Ofgem’s rules.

“We are working quickly to appoint new suppliers for all impacted customers. We’d advise customers not to try to switch supplier in the meantime, and a new supplier will be in touch in the coming weeks with further information.

“We have worked hard to improve the financial resilience of suppliers in recent years, implementing a series of rules to make sure they can weather unexpected shocks. But like any competitive market, some companies will still fail from time to time, and our priority is making sure consumers are protected if that happens.”

Business

Harrods challenges survivors’ law firm’s compensation cut

Published

12 hours ago

April 1, 2025

admin

Harrods challenges survivors' law firm's compensation cut

Harrods is urging lawyers acting for the largest group of survivors of abuse perpetrated by its former owner to reconsider plans to swallow a significant chunk of claimants’ compensation payouts in fees.

Sky News has learnt that KP Law, which is acting for hundreds of potential clients under the banner Justice for Harrods, is proposing to take up to 25% of compensation awards in exchange for handling their cases.

In many cases, that is likely to mean survivors foregoing sums worth of tens of thousands of pounds to KP Law, which says it is working for hundreds of people who suffered abuse committed by Mohamed al Fayed.

Money latest: Boost for holidaymakers amid ‘awful April’ bill hikes

Under a redress scheme outlined by the London-based department store on Monday, which confirmed earlier reports by Sky News, claimants will be eligible for general damages awards of up to £200,000, depending upon whether they agree to a psychiatric assessment arranged by Harrods.

In addition, other payments could take the maximum award to an individual under the scheme to £385,000.

A document published online names several law firms which have agreed to represent Mr al Fayed’s victims without absorbing any of their compensation payments.

KP Law is not among those firms.

Theoretically, if Justice for Harrods members are awarded compensation in excess of the sums proposed by the company, KP Law could stand to earn many millions of pounds from its share of the payouts.

A Harrods spokesperson told Sky News on Tuesday: “The purpose of the Harrods Redress Scheme is to offer financial and psychological support to those who choose to enter the scheme, rather than as a route to criminal justice.

“With a survivor-first approach, it has been designed by personal injury experts with the input of several legal firms currently representing survivors.

“Although Harrods tabled the scheme, control of the claim is in the hands of the survivors who can determine at any point to continue, challenge, opt out or seek alternative routes such as mediation or litigation.

“Our hope is that everyone receives 100% of the compensation awarded to them but we understand there is one exception among these law firms currently representing survivors who is proposing to take up to 25% of survivors’ compensation.

“We hope they will reconsider given we have already committed to paying reasonable legal costs.”

Responding to the publication of the scheme on Monday, KP Law criticised it as inadequate, saying it “does not go far enough to deliver the justice and accountability demanded by our clients”.

“This is not solely a question of compensation but about justice and exposing the systematic abuse and the many people who helped to operate it for the benefit of Mohamed al Fayed and others.”

Seeking to rebut the questions raised by Harrods about its fee structure, KP Law told Sky News: “KP Law is committed to supporting our clients through the litigation process to obtain justice first and foremost as well as recovering the maximum possible damages for them.

“This will cover all potential outcomes for the case.

“Despite the Harrods scheme seeking to narrow the potential issues, we believe that there are numerous potential defendants in a number of jurisdictions that are liable for what our clients went through, and we are committed to securing justice for our client group.

“KP Law is confident that it will recover more for its clients than what could be achieved through the redress scheme established by Harrods, which in our view is inadequate and does not go far enough to compensate victims of Mr al Fayed.”

The verbal battle between Harrods and KP Law underlines the fact that the battle for compensation and wider justice for survivors of Mr al Fayed remains far from complete.

The billionaire, who died in 2023, is thought to have sexually abused hundreds of women during a 25-year reign of terror at Harrods.

He also owned Fulham Football Club and Paris’s Ritz Hotel.

Harrods is now owned by a Qatari sovereign wealth fund controlled by the Gulf state’s ruling family.

The redress scheme commissioned by the department store is being coordinated by MPL Legal, an Essex-based law firm.

Last October, lawyers acting for victims of Mr al Fayed said they had received more than 420 enquiries about potential claims, although it is unclear how many more have come forward in the six months since.