•  British industries such as automotive, pharmaceuticals, and food and drink are facing the possibility of significant financial losses if the US moves ahead with its tariff and tax threats

LONDON 

As the UK faces the looming threat of new US tariffs under President Donald Trump’s second term, concerns are mounting within the British business sector over the potential economic fallout.

The Trump administration’s decision to include value added tax (VAT) in tariff calculations has exacerbated these worries, raising fears that UK industries could be significantly impacted, despite the traditionally strong trade relationship between the two countries.

The latest tariff measures, set to take effect on March 12, will see a 25% levy imposed on steel imports and an increase from 10% to 25% on aluminum imports. This move is part of a broader US effort to address what it perceives as “unfair or harmful acts, policies, or practices” by its trade partners, including the UK and the EU.

Prime Minister Keir Starmer is set to meet Trump at the White House on Thursday, where trade and economic cooperation will be high on the agenda.

His visit comes at a crucial time as British industries brace for potential disruption from the proposed tariffs, and Starmer is expected to push for exemptions and highlight the mutual benefits of maintaining strong UK-US trade ties.

The UK’s business community has reacted with alarm to the White House’s latest move. The British Chambers of Commerce has warned of severe consequences, with industries such as automotive, pharmaceuticals, and food and drink facing the possibility of significant financial losses.

The additional inclusion of VAT in tariff calculations has further complicated the landscape, adding another layer of costs that UK businesses will have to absorb.

US economic power and trade justifications

Soumitra Dutta, dean of Said Business School at the University of Oxford, told Anadolu that the US’ economic success grants its administration the leverage to impose such policies.

“The economic success of the US does give the administration the rights and the courage to project itself as the leader of the world,” Dutta explained.

“Every leader has their own strategy, but what is important is that it is based on economic power. Of course, in the case of the US, also military power. But if economic power wasn’t there, a lot of this would not happen.”

Dutta, however, does not believe that Trump is deliberately targeting the UK economy.

“I think what he’s trying to do is protect American interests … He’s just giving priority to American interests, and he’s doing what his population elected him for,” he said.

Trump has repeatedly justified tariffs by pointing to the trade imbalance the US has with multiple nations, including the UK.

However, discrepancies in how trade surpluses are calculated have created further confusion. Both the UK and US claim they run trade surpluses with each other, leaving analysts divided on whether the UK will ultimately secure an exemption.

The decision to include VAT in tariff calculations has added another layer of contention, with the Trump administration arguing that VAT acts as a discriminatory tax against American businesses. The UK government has pushed back, warning that such measures could harm trade relations and disrupt key industries.

 ‘Sledgehammer to free trade’

The impact of these tariffs is already being felt, particularly in the UK steel industry.

UK Steel, which represents the industry, has said that British steel exports will be subject to a 25% import tax upon entering the US. This reverses previous exemptions and quota arrangements that were granted to the UK and EU.

The new tariffs extend to steel derivative products as well, while only steel “melted and poured” in the US but processed elsewhere remains exempt.

This move affects key US allies, including the UK, Australia, and Japan, with other countries already subjected to similar tariffs.

Although UK steel exports to the US account for only around 10% of the industry’s total exports, there are growing concerns that the new tariffs will create a ripple effect.

A surplus of steel previously destined for the US could flood the UK market, undercutting domestic manufacturers with cheaper imports.

In a statement, Gareth Stace, director general of UK Steel, strongly criticized Trump’s approach, calling it a “sledgehammer to free trade.”

He stressed that UK steel products play a crucial role in key US industries, many of which struggle to find comparable products domestically.

“UK steel poses no threat to US national security,” Stace said, urging both governments to work together to address global overproduction rather than escalating trade tensions.

UK seeks negotiation instead of retaliation

Despite mounting frustration, the UK government has so far refrained from imposing retaliatory tariffs. Business Secretary Jonathan Reynolds emphasized that penalizing UK steel would be damaging to both the British and American economies.

With over £400 million (over $500 million) worth of UK steel exported to the US annually, any prolonged disruption could spill over into other key sectors, including pharmaceuticals, automotive, and food and drink.

The UK government has launched a consultation on its “Plan for Steel,” aimed at addressing long-standing issues within the sector, such as unfair competition from cheap imports.

It has also pledged £2.5 billion (over $3 billion) in support of its steel industry to help mitigate the impact of the tariffs.

However, critics argue that this alone will not be enough, calling for stronger engagement with Washington, particularly as Trump has made it clear that tariffs will be applied “without exceptions or exemptions.”

Shadow Business Secretary Andrew Griffith has criticized the government’s passive response, calling for proactive negotiations with the US to ensure fair treatment for UK steel.

Reynolds remains optimistic about ongoing discussions, noting that the UK supplies specialized steel and aluminum products that are vital to US industries, including components used by the US Navy.

“Imposing tariffs on UK steel would be negative for both countries,” Reynolds told BBC, adding that the UK and US have a “mutual interest” in reaching an agreement.