What are Donald Trump’s tariffs, what is ‘liberation day’ and how does it all 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.
Along the way, there have been threats, pauses and postponements.
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.
It is the importers buying the goods who pay the tariffs – therefore, American companies.
Ultimately, the intent is to protect US manufacturing and bolster jobs by making foreign-made products less attractive.
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 they make their products pricier and harder to sell.
In his second term, Mr Trump has frequently used them – or the threat of them – as a trade weapon.
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Trump’s tariffs: What can we expect?
They are a key part of Mr Trump’s efforts to reshape global trade relations, and he plans to impose a swathe of what he calls “reciprocal” taxes that would match tariffs levied by other nations.
Tariffs 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 fentanyl crossing the border.
What is liberation day?
Mr Trump has branded 2 April “liberation day”, when he could unveil the 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, with Mr Trump at times sending mixed messages.
On 30 March, he said “all countries” could expect to be hit by tariffs.
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What is Trump’s ‘Liberation Day’?
Speaking from Air Force One, the US president rubbished a question from a reporter who asked whether it was true he was planning on targeting between 10 and 15 countries.
“Who told you 10-15 countries? You didn’t hear it from me,” he said.
When pressed on how many he was planning to hit, he said: “You’d start with all countries, let’s see what happens.”
Two days prior, he said he was open to carving out deals with countries seeking to avoid US tariffs, but that those agreements would be negotiated after 2 April.
He had previously said he “may give a lot of countries breaks, but it’s reciprocal”, adding: “We might be even nicer than that.”
How could the UK be affected?
The UK hopes an economic deal with the US will spare the country from some of the tariffs.
Sir Keir Starmer and Mr Trump have had “productive negotiations” towards a UK-US “economic prosperity deal”, Downing Street has said.
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‘Everything on table over US tariffs’
The two leaders discussed a possible deal in a phone call on Sunday and agreed negotiations will “continue at pace”, according to a statement released on Sunday 30 March.
The day before the so-called “liberation day”, Sir Keir told Sky News political editor Beth Rigby the UK was “working hard on an economic deal” with the US and said “rapid progress” has been made.
But, he admitted: “Look, the likelihood is there will be tariffs. Nobody welcomes that, nobody wants a trade war.
“But I have to act in the national interest and that means all options have to remain on the table.”
Sir Keir added: “We are discussing economic deals. We’re well advanced.
“These would normally take months or years, and in a matter of weeks, we’ve got well advanced in those discussions, so I think that a calm approach, a collected approach, not a knee-jerk approach, is what’s needed in the best interests of our country.”
Mr Trump has not explicitly said the UK is in his sights for further tariffs, though he has described VAT – a tax added on all goods and services in the UK – as unfair.
In deciding what is a reciprocal tariff for the UK, it’s possible Mr Trump could use the tax, typically 20%, to decide.
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.
But the tariffs Mr Trump has already announced would have a big impact on the UK – particularly the car tariff.
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Business secretary hopes Trump tariffs will be ‘reversed in weeks or months’
Jonathan Reynolds, the business and trade secretary, told Sky News he is “hopeful” the tariffs can be reversed soon.
He warned: “The longer we don’t have a potential resolution, the more we will have to consider our own position in relation to [tariffs], precluding retaliatory tariffs.”
He added the government was taking a “calm-headed” approach in the hope a deal can be agreed, but said it is only “reasonable” that retaliatory tariffs are an option, echoing Sir Keir’s sentiments over the weekend.
What tariffs have already been announced?
Some tariffs have already come into effect, while Mr Trump has confirmed some that will come in on 2 April.
He has said a 25% tariff on all cars imported to the US will come into effect, with a similar tariff on car parts 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.
The tariff could have a huge impact on the UK’s car industry, including on manufacturers such as Jaguar Land Rover, Aston Martin and Rolls-Royce.
Official data shows 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.
Trump has also said he will place a 25% tariff on all imports from any country that buys oil or gas from Venezuela, which includes the US itself – in addition to imposing new tariffs on the South American country.
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 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, meaning they are set to resume on 2 April.
The pause did not fully cover a tariff of 10% on Canadian energy products.
What has been the global response to tariffs?
There has widely been condemnation of the tariffs, especially from countries worst affected like Mexico and Canada.
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Canadian PM: ‘Tariffs are an attack’
Some have imposed, or threatened to impose, retaliatory tariffs.
China has already hit back with retaliatory tariffs covering a range of US goods, including a 15% tariff on coal and liquefied natural gas products, a 10% tariff on US crude oil and tariffs of up to 15% on key US farm exports.
Canada imposed tariffs of its own on US products, including a 25% reciprocal tariff on US steel and aluminium products and tariffs worth an estimated C$29.8bn (£16bn) on a wide range of US products including orange juice, peanut butter, alcohol, coffee and clothing.
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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.
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.
Food inflation will rise to 6% by the end of the year – posing a “significant challenge” to household budgets in the run-up to Christmas, industry leaders have predicted.
The British Retail Consortium is warning that the chancellor risks “fanning the flames of inflation” if she hikes taxes in the coming budget.
Despite intense price competition between supermarket chains, the BRC has sounded the alarm over the pace of grocery price hikes.
As of this month, food inflation has risen 4% year on year – its highest level since February 2024.
The BRC said this increase is linked to global factors, such as high demand and crop struggles.
Beef, chicken and tea prices are among those that have risen the most this year – but some of the blame is being laid squarely at the chancellor’s door too.
The BRC said it was inevitable that a £7bn burden, through changes to employers’ national insurance contributions and minimum pay rules after last October’s budget, had been partly passed on to customers in the form of higher prices.
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Will we see tax rises in next budget?
It published the results of a survey of retail industry finance chiefs to illustrate its point – that nerves about what Ms Reeves’s second budget could bring were not helping companies invest in either new employment or prices.
Business was promised it would be spared additional pain after it was put on the hook for the bulk of the chancellor’s tax-raising measures last year.
However, speculation is now rife over who will feel the pain this autumn as she juggles a deterioration in the public finances.
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Options for wealth tax
A widening black hole is estimated at around £20bn.
The cost of servicing government debt has risen since the last budget, while U-turns on welfare reforms and winter fuel payment cuts have made her job even harder – making further tax-raising measures inevitable.
The survey of chief financial officers for the BRC showed the biggest current fear ahead was for the “tax and regulatory burden”.
Two-thirds of the CFOs predicted further price rises in the coming year, at a time when the headline rate inflation already remains stuck way above the Bank of England’s target of 2%.
It currently stands at 3.6%.
Helen Dickinson, chief executive of the BRC, said: “Retail was squarely in the firing line of the last budget, with the industry hit by £7bn in new costs and taxes.
“Retailers have done everything they can to shield their customers from higher costs, but given their slim margins and the rising cost of employing staff, price rises were inevitable.
“The consequences are now being felt by households as many struggle to cope with the rising cost of their weekly shop.
“It is up to the chancellor to decide whether to fan the flames of inflation, or to support the everyday economy by backing the high street and the local jobs they provide.”
She concluded: “Retail accounts for 5% of the economy yet currently pays 7.4% of business taxes and a whopping 21% of all business rates.
“It is vital the upcoming reforms offer a meaningful reduction in retailers’ rates bill, and ensures no store pays more as a result of the changes.”
The Treasury has been approached for comment.
The Federal Reserve has defied calls from US President Donald Trump for a cut to the interest rate by leaving it unchanged.
The decision means it has an effective rate of 4.3%, where it has remained after the central bank, known as the Fed, reduced it three times last year.
“We’re keeping the rates high, and it’s hurting people from buying houses,” Mr Trump told reporters. “All because of the Fed.”
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Mr Trump has repeatedly been asked whether he would fire Fed chair Jerome Powell if he failed to heed his demand to cut the rate.
In June, the US president labelled Mr Powell a “stupid person” after the Fed decided not to change rates. Then less than two weeks later, in a further attack, he said the Fed’s chair should “ashamed” and would “love” him to resign.
The US president has spent months verbally attacking Mr Powell.
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Fed chair has ‘done a bad job’, says Trump
There were clear tensions between the pair last Thursday as they toured the Federal Reserve in Washington DC, which is undergoing renovations.
When taking questions, Mr Trump said: “I’d love him to lower interest rates,” then laughed and slapped Powell’s arm.
There were clear tensions between the US President and Mr Powell during last week’s visit to the Federal Reserve. Pic: Reuters
The US president also challenged him, in front of reporters, about an alleged overspend on the renovations and produced paperwork to prove his point. Mr Powell shook his head as Trump made the claim.
When Mr Trump was asked what he would do as a real estate mogul if this happened to one of his projects, he said he’d fire his project manager – seemingly in reference to Mr Powell.
Donald Trump challenged Mr Powell in front of reporters. Pic: Reuters
Unlike the UK, the US interest rate is a range to guide lenders rather than a single percentage.
The Fed has expressed concern about the impact of Mr Trump’s signature economic policy of implementing new tariffs, taxes on imports to the US.
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Trump’s tariffs: What you need to know
On Wednesday, the president said he was still negotiating with India on trade after announcing the US will impose a 25% tariff on goods imported from the country from Friday.
Mr Trump also signed an executive order on Wednesday implementing an additional 40% tariff on Brazil, bringing the total tariff amount to 50%, excluding certain products, including oil and precious metals.
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The committee which sets rates voted 9 to 2 to keep the benchmark rate steady, the two dissenters were appointees of President Trump who believe monetary policy is too tight.
In a policy statement to explain their decision, the Federal Reserve said that “uncertainty about the economic outlook remains elevated” but growth “moderated in the first half of the year,” possibly bolstering the case to lower rates at a future meeting.
Nathan Thooft, chief investment officer at Manulife Investment Management, described the rate decision as a “kind of a nothing burger” and it was “widely expected”.
Tony Welch, chief investment officer at SignatureFD, agreed that it was “broadly as expected”. He added: “That explains why you’re not seeing a lot of movement in the market right now because there’s nothing that’s surprising.”
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