Chancellor Rachel Reeves has asserted the Labour Government does not want to “escalate” the looming trade war between the UK and the United States.
Yesterday, President Donald Trump announced a 25 per cent tariff on all motor vehicles imported to the United States, in a fresh blow to the UK economy.
The US president signed an executive order for the tax to take effect on April 2, which he called “liberation day”.
“What we’re going to be doing is a 25 per cent tariff for all cars that are not made in the United States,” Trump said during a press conference in the Oval Office.
This comes as a blow to Reeves as it came mere hours after her Spring Statement, which left little headroom for gross domestic product (GDP) growth if tariffs impact key sectors of the economy.
Donald Trump’s tariffs threaten to derail the fiscal agenda outlined by the Rachel Reeves
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The announcement raises serious concerns for Britain, whose largest vehicle export market is the US.
UK manufacturers sold £6.4billion in motor vehicles to America in 2023, according to the Office of National Statistics.
This represents 18.4 per cent of all UK car exports. The tariffs come at a particularly challenging time for the British economy, after the Office for Budget Responsibility (OBR) halved the UK’s economic growth forecast from TWO per cent.
Speaking to Sky News Breakfast, Chancellor Rachel Reeves sought to diffuse the looming conflict. “We’re not at the moment in a position where we want to do anything to escalate these trade wars,” she said.
Reeves emphasised that “trade wars are no good for anyone”. Her comments come as the UK government faces mounting pressure over its response to Trump’s protectionist policies.
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Chancellor Rachel Reeves is attempting to grow the economy and balance the books
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The Chancellor had already been forced to announce a £14bn package of cuts to repair the public finances in her spring statement.
The budget watchdog has warned that Trump’s tariffs could force Reeves to implement further tax rises or spending cuts.
Furthermore, the OBR cautioned there is a 50 per cent chance that Reeves would need to return with additional measures as soon as October.
In its economic forecast, the OBR said the most “severe” scenario would see GDP 0.6 per cent lower than forecast this year and one per cent lower next year.
This scenario would “almost entirely eliminate” the Chancellor’s £9.9bn headroom against her fiscal rules.
Andrew Griffith, the shadow trade secretary, has called the announcement “concerning”, adding that British jobs are “clearly now at real risk”.
He criticised the Labour government’s handling of the situation in stark terms. “I’m afraid Labour have dropped the ball here,” he told The Telegraph.
“This Government has never laid out a plan, took too long to get round the table with Trump and, as of now, they have nothing to show for it.”
Talks between the UK and US on avoiding tariffs remain ongoing, with Trade Secretary Jonathan Reynolds visiting Washington DC last week to discuss an “economic deal”.
However, Reynolds was unable to secure an exemption for the UK from steel tariffs imposed earlier in March.
Mike Hawes, Society for Motor Manufacturers and Traders (SMMT) chief executive, said the announcement as “not surprising, but nevertheless disappointing”.
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Donald Trump’s tariff threats are causing issues for the UK economy
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“US consumers enjoy vehicles built in Britain by some iconic brands, while thousands of UK motorists buy cars made in America,” Hawes noted.
Rather than imposing additional tariffs, Hawes suggested exploring ways to create opportunities for both British and American manufacturers.
“The industry urges both sides to come together immediately and strike a deal that works for all,” he added.
Prime Minister Keir Starmer has been speaking directly to the US president about progress on an economic deal between the UK and US.
Media reports suggest Britain could slash the digital services tax – a levy on big tech companies – to stave off American tariffs, though Reeves appeared to rule this out on Wednesday.