LONDON

Concerns are growing that the UK could be hit with higher US trade taxes after US President Donald Trump announced plans to introduce "reciprocal tariffs," targeting countries with Value Added Tax (VAT) systems.

Trump has instructed his administration to develop new tariffs that match the levies imposed on American exports.

The surprise inclusion of VAT in these calculations has sparked fears that British businesses could face significant trade disruptions, with analysts suggesting tariffs of 20% or more may be imposed on UK goods.

The British Chambers of Commerce (BCC) has warned that key sectors, including automotive, pharmaceuticals, and food and drink, could be "significantly hit" by the proposed tariffs, which were announced by the White House on Thursday.

VAT is a consumption tax applied to goods and services, regardless of whether they are domestically produced or imported.

The UK’s standard VAT rate is 20%, and Trump has cited it as an "unfair, discriminatory, or extraterritorial tax."

Historically, the UK’s trade relationship with the US had suggested it would be less exposed to tariffs than other countries.

However, Trump’s latest move has raised concerns about rising costs and increased uncertainty for businesses, investors, and consumers worldwide.

William Bain, head of Trade Policy at the BCC, cautioned that factoring VAT into tariff calculations could lead to “complex and costly tariff scenarios,” disrupting global trade norms.

He urged the UK government to avoid a "tit-for-tat" trade war and instead focus on diplomatic negotiations.

UK government urged to act

Bain warned that retaliatory tariffs could spiral out of control, calling for a "flexible and agile response" from ministers while monitoring the reactions of other global players.

The UK and US maintain a £300 billion annual trade relationship, and Bain stressed the need for both governments to prioritize negotiations that could lead to exemptions from the proposed tariffs.

“This has already been a tough start to the year for business,” he said. “Cost pressures are ramping up, confidence is down, and government pledges to unlock growth are yet to bear fruit.”

While UK services exports, which make up a larger portion of trade with the US than goods, will not be affected by the tariffs, the potential impact on goods trade remains a significant concern.