How Trump’s tariffs could cost consumers in the US and UK – even if he spares Britain
From midnight on Monday, Donald Trump’s tariffs on Mexico, Canada, and China came into effect. But what are they and what do they mean for the UK?
The second-time president claims the tariffs – taxes on goods imported into the US – will help reduce illegal migration and the smuggling of the synthetic opioid fentanyl to the US.
In a White House speech on Monday, Mr Trump confirmed 25% tariffs on goods from Mexico and Canada and the doubling of tariffs on Chinese imports – from 10% to 20%. Canadian energy will be levied at 10%, he added.
China responded immediately, with 15% taxes on food and agricultural products it sends to the US – worth around $21bn (£16.5bn).
Canadian Prime Minister Justin Trudeau also retaliated with extra tariffs worth $100bn (£78.7bn) over the next 21 days. Mexico has not yet announced any countermeasures.
Both Mexican President Claudia Sheinbaum and Mr Trudeau have promised extra troops at their US borders to combat illegal migration, in a bid to stop an all-out trade war with Mr Trump.
But he appears determined to go even further, targeting other countries, including those in the European Union, which he claims was created to “screw” the US.
Will Trump target UK with tariffs?
No new US tariffs have been announced on the UK.
And Prime Minister Sir Keir Starmer’s successful White House visit raised hopes Britain could avoid Mr Trump’s recent wave of them.
“I think there’s a very good chance that in the case of these two great, friendly countries, I think we could very well end up with a real trade deal where the tariffs wouldn’t be necessary. We’ll see,” the president told reporters afterwards.
Mr Trump is largely concerned with trade deficits – when you import more goods from another country than you send there in return.
The US does not have a trade deficit with Britain – so UK ministers have previously suggested this could be good news for avoiding new levies.
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How Trump’s tariffs will affect Britain
Why tariffs could cost you – even if Trump spares UK
But even if no tariffs are put on UK exports, consumers will still be impacted by the wider trade war.
Mr Trump’s Monday announcement sparked an immediate downturn in US and European stocks, with share prices for car manufacturers, including General Motors, which produces a lot of its trucks in Mexico, falling in particular.
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, the world’s largest economy – and global movements could hit 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 estimates 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.
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Some economists argue, though, that the UK might not be hurt too badly – even if Mr Trump imposes tariffs on British goods.
The UK doesn’t send a lot of goods to the US, exporting its banking and consulting services to them instead, which do not tend to be subject to tariffs.
However, the Centre for Inclusive Trade Policy thinktank said a 20% across-the-board tariff, impacting the UK, could lead to a £22bn reduction in exports in the UK’s US exports, with the hardest-hit sectors including fishing and mining.
How will it impact US consumers?
The flags of Mexico, the United States and Canada. Pic: Reuters
Although the Trump administration said the 10% Canadian energy tariff will boost domestic energy production, there are likely to be wide-ranging negative consequences for the US consumer.
Economists argue supply chains will be disrupted and businesses will suffer increased costs – leading to an overall rise in prices.
Both Mexico and Canada rely heavily on their imports and exports, which make up around 70% of their Gross Domestic Products (GDPs), putting them at even greater risk from the new tariffs.
China only relies on trade for 37% of its economy, having made a concerted effort to ramp up domestic production, making it relatively less vulnerable.
Avocados – and other fruit and veg
Avocados from Mexico at a store in the US. Pic: Reuters
The US imports between half and 60% of its fresh produce from Mexico – and 80% of its avocados, according to figures from the US Department of Agriculture.
Canada also supplies a lot of the US’s fruit and vegetables, which are mainly grown in greenhouses on the other side of the US border.
This means new tariffs will quickly be passed on to consumers in the form of higher prices.
The US still grows a considerable amount of its own produce, however, so the changes could boost domestic production.
But economists warn an overreliance on domestic goods will see those suppliers increase their prices too.
Petrol and oil prices
Oil and gas prices are likely to be impacted – as Canada provides around 60% of US crude oil imports and Mexico roughly 10%.
According to the US Energy Information Administration, the US received around 4.6 million barrels of oil a day from Canada last year – and 563,000 from Mexico.
Most US oil refineries are designed specifically to process Canadian products, which would make changing supply sources complex and costly.
Oil tariffs could see an increase in fuel prices of up to 50 cents (40p) a gallon, economists have predicted.
Cars and vehicle parts
General Motors plant in Ramos Arizpe, Mexico. Pic: Reuters
The US car industry is a delicate mix of foreign and domestic manufacturers.
The supply chain is so complex that car parts and half-finished vehicles can sometimes cross the US-Mexico border several times before they are ready for the showroom.
If this continues, the parts will be taxed every time they move countries, which will lead to an even bigger increase in prices.
As a result, Gustavo Flores-Macias, public policy professor at Cornell University, says “the automobile sector, in particular, is likely to see considerable negative consequences”.
To mitigate this, General Motors has said it will try to rush through Mexican and Canadian exports – while brainstorming how to relocate manufacturing to the US.
Mr Trump said of this dilemma on Monday: “They’re going to have a tariff. So what they have to do is build their car plants, frankly, and other things in the United States, in which case they have no tariffs.”
Electronic goods
When Mr Trump imposed a 50% tariff on imported washing machines during his first term in 2018, prices suffered for years afterwards.
China produces a lot of the world’s consumer electronics – and smartphones and computers specifically – so tariffs are likely to have a similar effect on those devices.
The Biden administration tried to legislate to promote domestic production of semiconductors (microchips needed for all smart devices) – but for now, the US is still heavily reliant on China for its personal electronics.
This will mean an increase in prices for electronics consumers globally – unless tech companies can relocate their operations away from Beijing.
Boost for the steel industry
The sector that could actually benefit from the Trump tariffs is the steel and aluminium industry.
It has long been lobbying the US government to impose levies on foreign suppliers – claiming they are dominating the market and leaving domestic factories without enough business and at risk of closure.
Steel imports increasing in price could therefore promote domestic production – and possibly save some of the plants.
But when Mr Trump increased steel tariffs during his first term, prices also increased – which business leaders said forced them to pass on costs and left them struggling to complete construction projects on budget.
BP has signalled an accelerated effort to bring down costs ahead, refusing to rule out further job losses as artificial intelligence (AI) technology helps drive efficiencies.
The company, which revealed in January that it was to axe almost 8,000 workers and contractors globally as part of a cost-cutting plan, said alongside its second quarter results that it was to review its portfolio of businesses and examine its cost base again.
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BP is under pressure to grow profitability and investor value through a shareholder-driven refocus on oil and gas revenues.
Just 24 hours earlier, the company revealed progress through its largest oil and gas discovery, off Brazil’s east coast, this century.
BP said it was exploring the creation of production facilities at the site.
It has made nine other exploration discoveries this year.
BP’s share price has lagged those of rivals for many years – a trend that investors have blamed on the now-abandoned shift to renewable energy that began under former boss Bernard Looney.
BP boss Murray Auchincloss is facing shareholder pressure to grow profitability
His replacement, Murray Auchincloss, has reportedly come under shareholder pressure to slash costs further, with the Financial Times reporting on Monday that activist investor Elliott was leading that charge based on concerns over high contractor numbers.
Mr Auchincloss said on Tuesday that AI was playing a leading role in bolstering efficiency across the business.
In an interview with Sky’s US partner CNBC, he said: “We need to keep driving safely to be the very best in the sector we can be, and that’s why we’re focused on another review to try to drive us towards best in class… inside the sector, and technology plays a huge part in that.
“Just technology is moving so fast, we see tremendous opportunity in that space. So it’s good for all seasons to drive cost discipline and capital discipline into the business. And that’s what we’re focused on.”
When contacted by Sky News, a BP spokesperson suggested the company had no plans for further job losses this year and could not speculate beyond that ahead of the conclusions of the new cost review.
BP reported a second quarter underlying replacement cost profit of $2.4bn, down 14% on the same period last year but well ahead of analyst forecasts of $1.8bn. Much of the reduction was down to lower comparable oil and gas prices.
It moved to reward investors with a 4% dividend increase and maintained the pace of its share buyback programme at $750m for the quarter.
BP said it was making progress in driving shareholder value through both its operational return to oil and gas investment and cost reductions, which stood at $1.7bn over the six months.
Shares, up 3% over the year to date ahead of Tuesday’s open, were trading 2% higher in early dealing.
Derren Nathan, head of equity research at Hargreaves Lansdown, said of the company’s figures: “Production increases, strong results from trading activities, favourable tax rates, and better volumes and margins downstream all played their part.
“It’s also upping the ante when it comes to exploration and development, culminating in this week’s announcement of an oil find at the offshore Brazilian prospect Bumerangue.
“Its drilling rig intersected a staggering 500m of hydrocarbons. Taking into account the acreage of the block, it’s given BP the confidence to declare the largest discovery in 25 years.”
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