So Donald Trump did exactly what he said he was going to do, and put tariffs on imports from all of America’s biggest trading partners. At time of writing, Keir Starmer has acknowledged there will be an impact on the UK economy, but has yet to say how he intends to respond beyond promising to “keep a cool head”. On top of the 25% tariffs on British steel and cars, there is now an additional 10% ‘everything else’ tariff, which interestingly is less than the 20% applied to EU exporters. While this may reflect the lower trade imbalance that the UK enjoys with the US compared to the EU, it is just as likely to be intended as some performative favouritism designed to drive a wedge between the UK and EU.
So how should the UK respond? It’s true that ultimately nobody wins a trade war, and mutual economic damage is always inflicted until a truce is negotiated. Does this mean that maybe we should just suck it up, avoid any retaliation, and hope that we can dodge the worst of the harm until a new US administration arrives? Or should we respond robustly and hit back with significant tariffs of our own on the US, and risk provoking “retaliatory-retaliation”? Despite the inherent risks I suggest the latter, for three reasons.
Firstly, we know Trump doesn’t respect weakness, and a failure to respond will be seen as weakness by his administration. If you hand over your lunch money to the school bully with no resistance, what’s to stop him coming for your pocket money too?
Secondly, Trump is a very transactional negotiator who seeks maximum advantage with zero interest in right and wrong. Subsequent negotiations will start from the ‘facts on the ground’ at that point in time. Without applying retaliatory tariffs of our own, the question then becomes what does the Government offer to give away in exchange for tariff relief? Scrap the digital services tax? Allow imports of US chlorine-washed chicken and hormone fed beef? At least if we apply tariffs of our own, first thing on the table is mutual reductions in tariffs before we give anything else away.
Finally, if we apply retaliatory tariffs it will affect US companies that export to the UK. Some of those are large corporations with armies of lobbyists in Washington, and many are political donors. We need those lobbyists and donors pressuring the Trump administration to negotiate tariff reductions, as they have far more influence on a cash-hungry campaigner like Trump than we can hope for.
So we should respond firmly with carefully targeted retaliatory tariffs on US imports. Of course this is not risk-free, as we are dealing with an unpredictable administration with no respect for established norms and the rule of law. But we could begin by identifying those US companies and industries that make the largest donations to Republican causes and fund the largest Washington lobbying operations. These days that does of course include US Tech companies, so let’s start with them and increase the Digital Services tax to 10% from its current 2%, as the Liberal Democrats have already been suggesting. Then be open to negotiations, but not from a position of weakness.
* Nick Baird is a Lib Dem activist and Chair of the Cheltenham Party. He is writing in a personal capacity.
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26 Comments
I disagree, Trumps Tarriffs are an act of self-harm, our response should be to strengthen trading links with the rest of the world, raising trade barriers would just make things worse for us & everybody else.
There will be plenty of areas where we have to resist Trump.
I also disagree. What the world does not need is a trade war. The USA has problems and should be left to try and sort itself out.
Our struggle with the USA is about much more than trade and tariffs – it is about different value systems. For example, most in the USA (including many Democrats, I suspect) would be amazed that on the same say in England, a woman who stands near an abortion clinic with a sign saying ‘here to talk if you want’ gets fined £20,000 while a second woman who killed her new born baby by shoving wads of paper tissues into its mouth and throat gets off with just a suspended sentence. The USA thinks freedom of speech is an absolute core value – we believe it should be curtailed on occasions. The USA places far more emphasis on punishment for crimes, especially when lives are lost – we are more likely to view those who commit crimes as also victims themselves, and put less emphasis on punishment.
So how we react to the USA in the face of trade tariffs has to be consistent with our values. Do we fight force with force, or do we take a stand that is based on our values?
As already posted in response to Sir Ed Davey’s statement (qv)
Retaliatory tariffs are exactly what caused the 1930s recession to be as deep and as long as it was. – all countries trying to export their unemployment. Maybe it is better just to sit quiet for a while, wait until American consumers realise they have been duped and get tried of paying higher prices for our products, Trump moves on to anther fad and the whole thing blows away.
I think we have to consider the 10% worldwide tariff on US imports simply as a consumption tax (instead of VAT) applied by this administration. State sales taxes vary widely from Nil in many states to 7.25% in California. Combined these taxes are still less than typical UK or EU VAT rates.
The focus of retalitatory tariffs (if they are not quickly negotiated down in a UK/US trade agreement) should be the 25% sectoral tariffs on Steel, Aluminium and Cars.
I think Joe Bourke has the right angle.
The 10% is a global tariff and unlikely to be reduced in the near term. The car and metals ones are designed to be specifically painful We should react relative to those, although the lack of strength in the UK finances makes that challenging. A bit of a strange situation is that our car and metals companies are mostly not UK owned.
Anyway, the world ecnomy has had itself in a mess over many decades by becoming dependant on excessive consumer consumption of US citizens (Bill Bryson worried about this in one of his books) and the deficit of the US economy. This moment may be the opportunity to develop a more sustainable economic system.
The solution to this is to hit the US with bans on US companies tendering for government contracts especially those involving defence and computer software. Both are huge earners for the US in Europe and the US can’t complain since if you act like a hostile country, you can’t complain when you are treated as a hostile country.
@Paul Barker – yes, of course we should strengthen trading links with other like-minded countries. But like it or not, we are going to have to negotiate with the Trump administration too. The question is how we best position ourselves for that.
@Christopher Haigh – while the world doesn’t need a trade war, it is getting one, and not of our making.
@Joe Bourke – I don’t see how tariffs can be viewed as a consumption tax if they only apply to imports? VAT applies to both domestic and imported goods. Countries generally import things that they don’t have domestically or can be made better or cheaper somewhere else. Occasionally due to unfair subsidies or dumping. Unless it’s because of the latter, matching sectors for retaliatory tariffs doesn’t make much sense.
Your argument seems to be that Trump has done something which will damage the US economy and make US consumers poorer and therefore we should do the same .
@Simon McGrath – my argument is that Trump has done something that will damage the *UK* economy, and I’d like him to stop. The question is how do we best achieve that aim?
It wasn’t that long ago that the UK car industry was celebrated as one of our few manufacturing success stories. Post-Brexit it is now struggling, and unjustified 25% tariffs on sales to it’s second-biggest export market aren’t helpful.
We can argue about how to deal with direct trade with the US but our main focus should be on removing barriers with all other like minded countries. Start with the EU obviously but we need a deeper GATT for everyone prepared to abide by it.
The non-American alternative to Burger King is called food.
The difference between the UK and US on “freedom of speech” is that unlike them, we understand that freedom of speech does not mean freedom from consequences. Elon Musk was able to get away with falsely accusing someone of being a paedophile. This would never happen here, because we understand the principle that freedom cannot interfere with that of others. American so-called “libertarians” are really licentialists, as they believe in freedom from the consequences of one’s actions, and only for the rich and powerful (as they are in practice the only people who can exercise such fake “liberty” (i.e. licence)).
Alex; Nobody has a right to live there lives free from hurt feelings , insult , or offence.
Those consequences you talk of lead us down the path where six uniformed officers arrest a couple at home for comments made on a WhatsApp group chat. Held for over 7 hours & released without charge – something the Stasi would be proud of . These police visits are becoming far to frequent . The worst one I’ve seen is the visit by two uniformed officers and a NHS nurse to speak to some guy who made some Facebook comments about the church attack in New Zealand – it’s almost surreal & I didn’t believe it until I actually viewed it ..
That’s the society we live under – liberal it most definitely isn’t.
@NickBaird. No, we don’t have to negotiate with Trump. We can make common cause with all those countries around the globe who prefer free trade, especially Canada, the EU and other commonwealth countries and shift our trade to them instead of the USA. In the short run it will be painful but ending our dependence on the USA as a trading and defence partner will ultimately be to our benefit and will end the ability of Trump or his successors to use tariffs as a weapon against us. Maybe then he and the Republicans will realise just how important free trade is and change course, but I for one am not holding my breath. Of course Starmer will keep on pretending a deal can be made with this bully that will benefit the UK, instead of engaging fully with the largest market on the planet, on our own doorstep.
@ Joe
“the 10% worldwide tariff on US imports simply as a consumption tax (instead of VAT) applied by this administration. State sales taxes vary widely from Nil in many states to 7.25% in California. Combined these taxes are still less than typical UK or EU VAT rates.”
Bringing VAT or US sales tax into the argument is a Red Herring. Anything which is brought into the EU or UK comes in effectively VAT free to the importer. VAT is then charged when the goods are resold in the same way as are domestically produced goods. US sales tax works the same way.
So there is no discrimination between imported and domestically produced goods.
There is when tariffs are applied of course.
@Craig: Are you sure you’re not confusing two different things; Alex was referring to people on social media telling malicious lies. That’s not the same thing as expressing a genuine opinion that others take offence at or think is hurtful. I agree with you that it’s wrong for the police in the UK to be policing and arresting people for expressing opinions that others think are hurtful. But that doesn’t mean we should tolerate outright libel.
I accept this article nut as is pointed out there is a real opportunity to build trade with others, not least with the EU.
Apologies. Not sure where ‘nut’ came from.
Ah! Should have been ‘but’.
Peter,
importers will directly pay VAT on most goods brought into the UK with the exception of just a few, such as children’s clothing, books and most foods. They will then recover the VAT as input tax and charge VAT on their selling price to customers. The final consumer of the goods (whether an individual or a business) will bear the tax. The incidence of taxation is the same with Tariffs or other customs/excise duties i.e. the ultimate consumer will bear the effective burden of the tax rather than the business reseller who either offsets input vat against output vat collected on behalf of HMRC or includes customs and excise duties in their cost of sales to which a profit margin is added.
Simon; I was addressing his first sentence, in regards to freedom of expression. In a tolerant liberal society – the Batley grammar school teacher should be free to go wherever he pleases. Sadly the progressive left has abandoned that tolerance in the name of diversity .
@ Joe,
I’m surprised you’re taking the a similar line to Trump on the question of VAT. The EU has long made the same argument as myself that VAT isn’t the same as a tariff and nor is it intended to be one.
VAT is a non discriminatory consumption tax. Tariffs are highly discriminatory. Their purpose is to tilt the balance of trade rather than tax consumption per se.
https://www.euronews.com/my-europe/2025/04/03/fact-check-are-donald-trumps-tariffs-on-the-eu-really-reciprocal
@Craig Levene: Since I gave an example, it should be obvious what I meant by the first sentence. And it was nothing to do with Batley grammar school teachers or any other expression that merely upsets people rather than unjustly damages their reputations or intentionally incites violence and hatred. You cannot take a sentence in isolation from its context. And you have no (moral) right to ascribe to me positions on something that I did not even mention in my comment.
As it happens, we know what happens when a public figure falsely accuses people of being paedophiles in this country.
https://www.bbc.co.uk/news/entertainment-arts-68899248
Spreading misinformation and disinformation also has consequences in this country, especially when it is done for the purpose of inciting violence. We don’t think spreading lies about the Southport attacker is “free speech”. Elon Musk seems to think it is, probably because he thinks the resulting violence was a good thing.
Yet many American so-called “free speech absolutists” are the first to complain when their views are challenged. Elon Musk frequently blocks anyone who challenges his opinions on his platform. He also happily works with authoritarian regimes to censor their critics. So apart from not understanding what freedom of speech actually means, people like him are hypocrites.
Peter,
Trumps line is that foreign counties will pay the Tariffs – clearly misinformation. Tariffs are a tax on domestic consumers. Yes. discriminatory vis a vis domestically produced goods but a tax nontheless.
However, we also have discriminatory domestic taxes on top of import tariffs/VAT. In the UK, we levy additional excise duties on goods and services such as Alcohol duty; Air Passenger Duty; Aggregates Levy; Bingo Duty; Climate Change Levy;HGV Road User Levy; Hydrocarbon Oil Duty; Landfill tax; Machine Games Duty; Tobacco Duty; Vehicle Excise Duty; Betting and gaming duty; Fuel duty; Tobacco products duty etc.
We also employ tariffs or trade remedies in the form of anti-dumping measures: countervailing measures used to counteract subsidies provided by foreign governments to their producers, which can distort competition and safeguard measures (temporary measures to protect a specific industry from an unexpected surge in imports).
Trade negotiations can become complex when trying to evaluate the impact of tariff, non-tariff and regulatory barriers in the form of health and safety regulations etc.
What remains common though is that it is consumers that will utlimately have to bear the cost of indirect taxes and levies whatever form they take.
Hardly anyone is suggesting there should be no tariffs but the consensus is that they should be kept to a minimum. The WTO, the World Trade Organisation, and before that the countries who signed up to the GATT, the General Agreement on Tariffs and Trade, were doing a good job in gradually whittling them away.
There are still many low level tariffs of the order of 2% which could be easily abolished. They are more trouble than they possibly can be worth to anyone.
This was, of course, before Trump tore up 70 years of hard work by the international community! The effect of the new tariffs will be to increase prices everywhere. The neoliberals will then likely respond by tightening monetary and fiscal policies even further. This will be catastrophic and could well lead to a new world depression. Having a 10% rate rather than 20% won’t save us!
It’s not as if high tariffs will do what they are claimed to. Unless all countries apply capital controls, or let their currencies truly float freely, the pressure of exchange rate differentials will always create trade imbalances.
Lerners equivalence theorem states that “….an ad valorem import tariff (a percentage of value or an amount per unit) will have the same effect as an export tax. ” I doubt if Donald Trump would want to apply an export tax or even if he has the slightest clue about any of this!
It’s not going to end well.
https://en.wikipedia.org/wiki/Lerner_symmetry_theorem