What are Donald Trump’s tariffs, what will happen on ‘liberation day’ and how does it affect the UK?

If there is a word that has dominated Donald Trump’s second term, it’s tariffs. 

Aluminium, steel, cars and champagne have all been in his firing line, while China, Canada and Mexico are the countries targeted with the heaviest costs.

But along the way, there have been threats, pauses and postponements.

His latest move was to announce a 25% tariff on all cars imported to the US.

So what are tariffs, what is in the pipeline – and what could all this mean for the UK?

What are tariffs and why is Trump threatening to use them?

Tariffs are taxes on goods imported into the US.

In his second term, Mr Trump has frequently used them – or the threat of them – as a trade weapon.

They were also part of his playbook in his first term, when he imposed taxes on most goods coming from China and used them as a bargaining chip to force Canada and Mexico to renegotiate a North American trade pact.

On his first day back in office, the US president promised 25% tariffs on all products coming into the US from its nearest neighbours Mexico and Canada – ostensibly to force the countries to tackle illegal migration and the smuggling of the synthetic opioid fentanyl to the US.

What is liberation day?

Mr Trump has branded 2 April “liberation day”, when he could unveil reciprocal tariffs on countries deemed to be giving the US a bad deal on trade.

The extent of potential tariffs and countries affected remains unclear.

Mr Trump has said he “may give a lot of countries breaks, but it’s reciprocal”, adding: “We might be even nicer than that.”

But he said additional tariffs are coming, including on lumber and semiconductor chips, and has previously promised tariffs on pharmaceuticals.

He has also threatened to impose 25% tariffs on any country that buys Venezuelan oil.

The latest car tariff is also due to come into force on 2 April.

What does the car tariff mean?

The car tariff would mean all cars imported into the US face a 25% tax.

It is the importers that buy the goods who pay the tariffs – therefore, American companies.

However, there is a knock-on effect: to compensate for tariffs, companies put up their prices, so customers end up paying more for goods.

Tariffs can also damage foreign countries as it makes their products pricier and harder to sell.

A similar tariff on car parts is expected to follow in May. This could prove even more complicated for American car makers, who source components from around the world even if the vehicle is made in the US.

But Mr Trump has insisted the move will “continue to spur growth”, pointing to plans from Hyundai – the South Korean car maker – to build a $5.8bn (£4.5bn) steel plant in Louisiana.

How will the car tariff affect the UK – and is it planning to negotiate a trade deal?

The tariff could have a huge impact on the UK’s car industry, including manufacturers such as Jaguar Land Rover, Aston Martin and Rolls-Royce.

Official data shows that the US is the UK car sector’s largest single market by country, accounting for £6.4bn worth of car exports in 2023 – 18.4% of the total.

The UK government has signalled it would not retaliate with a reciprocal tariff – despite pleas from British manufacturers to avoid the tariffs.

While Chancellor Rachel Reeves condemned the move, she told Sky’s Wilfred Frost: “We’re not at the moment in a position where we want to do anything to escalate these trade wars.”

Sky News understands the UK government is continuing to engage with the US on a trade deal and remains hopeful an agreement could be made before the tariffs come into force, but may retaliate if deemed necessary at a later date.

Ms Reeves seemingly alluded to the negotiations when she spoke to Sky News after the car tariff announcement.

“Trade wars are no good for anyone,” she said.

“It will end up with higher prices for consumers pushing up inflation after we’ve worked so hard to get a grip of inflation, and at the same time, will make it harder for British companies to export.

“So look, we are looking to secure a better trading relationship with the United States. I recognise that the week ahead is important.

“There are further talks going on today, so let’s see where we get to in the next few days.”

Mr Trump has not explicitly said that the UK is in his sights for further tariffs.

Data shows no great trade imbalances – the gap between what you import and export from a certain country – and UK figures show no trade deficit with the United States.

UK ministers have previously suggested this could be good news for avoiding new levies.

What has the reaction been around the world?

There was swift condemnation of the car tariffs, especially from countries worst affected including Mexico, Canada, South Korea and Germany.

Listed European car and car parts manufacturers saw further steep declines in their share prices in trading after the plans were announced.

Canadian Prime Minister Mark Carney called it a “direct attack” on Canadian workers.

Even Trump advisor Elon Musk, the Tesla boss, admitted in a post on his X platform that the hit to his company would be “significant”.

“Important to note that Tesla is NOT unscathed here. The tariff impact on Tesla is still significant,” he wrote.

Which tariffs are already in place?

On 12 March, a 25% tariff on all steel and aluminium imports to the US came into effect, affecting UK products worth hundreds of millions of pounds.

The steel and aluminium tariffs are designed to protect US manufacturing and bolster jobs by making foreign-made products less attractive.

The move came after he placed a 10% tax on all imports from China, which he later doubled to 20%.

He placed 25% tariffs on Mexico and Canada, but paused them for a month two days after they came into effect.

They are now paused until “liberation day”.

The pause does not fully cover a tariff of 10% on Canadian energy products.

What was the global response to steel and aluminium tariffs?

The European Union has said it will impose retaliatory tariffs on the US, but when they will come into force is unknown.

The European Commission initially threatened to impose “countermeasures” affecting €26bn (£21.9bn) of US goods from 1 April, but later delayed this until the middle of April.

The bloc said the delay was because it wanted “additional time for discussions” with the US after Mr Trump threatened a 200% tariff on EU alcohol – including wine and champagne – if the bloc imposed duties on US whiskey.

Any tariffs imposed by the bloc would not only impact US steel and aluminium products, but also textiles, home appliances, agricultural goods and whiskey.

Canada’s finance minister also announced 25% retaliatory tariffs on US goods worth C$29.8bn (£16bn) that came into effect on the morning of 13 March.

The tariffs include steel products worth C$12.6bn (£6.8bn) and aluminium products worth C$3bn (£1.6bn) as well as computers, sports equipment and cast iron goods.

How did the UK respond to metal tariffs?

Sir Keir Starmer said he was “disappointed” by the global tariffs, but neither he nor Business Secretary Jonathan Reynolds would commit to an immediate retaliation, with discussions over a wider trade deal ongoing.

While the UK metal industry sees it as a direct attack, the reality is that this country is not a major player any more because energy costs, in particular, mean that UK-produced steel is expensive.

Nevertheless, stainless steel and some high-end products from the UK are in high demand and account for the bulk of the £350m in annual exports to the US.

Read more on tariffs:
It may be harder for the UK to trump metals tariffs
‘Canadianos’ and cancelled Vegas trips: How Canadians are acting with defiance

Why tariffs could cost you – even if Trump spares UK

Even if no tariffs are put on all UK exports to the US, consumers globally will still be impacted by the wider trade war, particularly in the US.

Economists believe that tariffs will raise costs in the US, sparking a wave of inflation that will keep interest rates higher for longer. The US central bank, the Federal Reserve, is mandated to act to bring inflation down.

More expensive borrowing and costlier goods and services could bring about an economic downturn in the US and have knock-on effects in the UK.

Forecasts from the National Institute of Economic and Social Research (NIESR) predict lower UK economic growth due to higher global interest rates.

It estimated that UK GDP (a measure of everything produced in the economy) could be between 2.5% and 3% lower over five years and 0.7% lower this year.

The Centre for Inclusive Trade Policy thinktank said a 20% across-the-board tariff, impacting the UK, could lead to a £22bn reduction in the UK’s US exports, with the hardest-hit sectors including fishing and mining.