There are other ways in which Britain could be negatively affected by US tariffs on other countries.
Slower growth in the global economy and, in particular, the EU – with which the UK still does around half of its trade – would impede the UK’s growth prospects.
If our trading partners were to fall into recession due to tariffs, analysts say they would cut interest rates and their currencies would drop in value making British exports to them more expensive.
“The US imposing tariffs on our other trading partners will still have a negative effect on the UK economy through its effect on supply chains and the exchange rate,” said Ahmet Kaya, of the National Institute of Economic and Social Research (NIESR).
Niesr has estimated that the 25% tariffs the US has threatened to impose on Mexico and Canada could reduce UK GDP growth by 0.1 percentage points in 2025.
Some economists warn exports – such as Chinese-made steel – that might get diverted from the US markets due to the new tariffs, could be sold at below the cost of production, or “dumped” in UK markets, which might have a negative impact on the sales of UK steel producers.
Some analysts say higher US interest rates as a result of the tariffs could also spill over to UK borrowing markets.
One of the reasons UK government borrowing costs, or Gilt yields, temporarily spiked upwards in January, was because American government bond yields had also risen.
“The main threat to the UK economy from Trump’s tariffs may well be the spillover from higher US interest rates, rather than tariffs themselves,” says the economist Julian Jessop, external.
“US and UK government bond yields are now moving in lockstep again. If the Fed [US central bank] is more reluctant to cut US rates, as seems likely, borrowing costs will be higher for longer in the UK as well.”
Higher borrowing costs could slow the UK economy and also put pressure on the UK government to cut public spending or raise taxes in order to keep within its chosen borrowing rules.
Source:
www.bbc.com
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