10 for 10: Watershed moment in international trade as President Trump unveils Liberation Day Tariffs

For unforeseen reasons, economic shocks tend to happen at unpredictable times, with shocks like Black Monday, Wednesday or Friday named retrospectively. Liberation Day is rare because it was already named, worst-case scenarios poured over, and a well-trailed decade-long ambition for US President, Donald Trump. And yet, the US president’s announcement of a 10% baseline tariff for foreign goods and higher ones still for the EU, China, and earthquake-struck Myanmar, among others, will have global ramifications to rival historical financial crises and recessions. With hindsight, the announcement may seem less like a singular shock, but instead, it marks a significant inflection point in the pattern of world trade. 

Keir Starmer has done well so far to focus on this long view – maintaining a “calm head” rather than embracing a “knee jerk reaction” to falling share prices across the world. Indeed, all will be relieved to see the baseline tariff of 10% written next to the UK on Trump’s cardboard prop compared to the 20% tariff handed to our EU neighbours. However, 10% would have been a worst-case scenario up until a few weeks ago, notwithstanding the 25% blow dealt to the car and steel industries, and it would have serious ramifications for employment and revenues in export industries. The immediate tariffs placed on car exports alone are set to threaten 25,000 UK car manufacturing jobs, according to the IPPR. 

On the UK’s approach so far, SEC Newgate’s Allie Renison, former policy adviser to the Secretary of State for Business and Trade, commented that “Cool heads have prevailed with some success, insofar as the UK is among those with the lowest baseline of Trump’s tariffs. The question is, for how long can they persist if we are still in a world of 10% duties across all our exports, 25% on cars and parts, and a trade deal that may still be some distance away?”

Some have been keen to break out the phrase ‘I told you so’ for the first time since Brexit, accrediting the UK’s comparatively low baseline tariff rate as a ‘Brexit Dividend’ (The Telegraph) or ‘finally…a tangible benefit of Brexit that no one can ignore’ (The Spectator). Brexit dividend or not – casting an eye to Northern Ireland’s exposure to EU retaliatory tariffs – Keir Starmer certainly deserves credit for his mediating position in the run-up to “Liberation Day”, telling the Commons yesterday that “constructive talks are progressing to agree a wider economic prosperity deal with the US”.

Today, Starmer has remained careful to be the mediator, telling journalists at Labour’s Local Elections Campaign Launch that it is “not wise to go round telling other countries what they should or shouldn't do”. Secretary of State for Business and Trade Jonathan Reynolds MP explained the UK's stance further, saying he will now engage with stakeholders on potential retaliatory tariffs, giving himself a deadline of 1 May to hear what the world of business thinks should be the UK’s reaction.

It remains to be seen how long Starmer can continue to navigate the international stage with a “cool-head” amidst growing EU-US tensions and the growing success of populist strongmen - Trump’s 2016 pledge to put “America First” has finally come to fruition (give or take impending price spirals, retaliatory tariffs, and cracking geopolitical alliances), just as Orban has announced Hungary’s withdrawal of the International Criminal Court in support of Netanyahu.

Whether or not Starmer’s position on the international stage remains that of the go-between, tariffs will undoubtedly back the Government into a corner domestically. Rachel Reeves’s limited fiscal headroom looks far worse now. There is a question mark over whether the UK’s “pragmatic” responses to tariffs that “explore all options” will need to be accompanied by a more pragmatic and flexible approach to fiscal rules – if the rules of international trade can be uprooted overnight, should we stay tied down by our own?

Starmer’s inoffensive approach has allowed him to step back and acknowledge that Trump’s tariffs will not be “just a short term, tactical exercise”. Instead, “it is the beginning of a new era”. “Liberation Day” certainly marks a significant change to the geography of the global economy – economists who talked of “globalisation” and the “end of history” will be starting to draft a new chapter titled “trade fragmentation” and “the age of protectionism”. How the UK should adapt and thrive in this new era will remain a question for the weeks and decades.

If you would like to learn more about these tariffs impact your business or how to engage with the government ahead of any retaliatory measures, do get in touch via hello@secnewgate.co.uk