Flint advises international businesses and investors on policy, politics, regulation and competition.
Flint advises international businesses and investors on policy, politics, regulation and competition.
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With the race for the White House currently neck and neck, the possibility of a second Trump presidency should be treated seriously by businesses.
Trade is a central pillar of Trump’s Presidential campaign, where his rhetoric has focused on protecting U.S. domestic economic capabilities and jobs by restricting foreign access to the U.S. market and reducing the country’s trade deficit.
During the election campaign, Trump has proposed a 20% universal tariff on all U.S. imports, a 60% tariff on Chinese imports and a 100% tariff on imports from countries shifting away from using the U.S. dollar.
In addition to imposing a blanket tariff on all U.S. imports, Trump could revive dormant trade disputes with the EU and UK relating to steel and aircraft, or increase tariffs on key goods such as cars. He may also respond to the EU’s digital regulations, which negatively affect American tech firms, by introducing new restrictions on European products. Trump could leverage the threat of tariffs against both the EU and UK as a bargaining tool, pressuring them to increase defence spending or adopt the U.S. approach to China.
Of the two, Trump’s attention, and ire, will probably focus on the EU but the UK will not be immune to these pressures and may find itself entangled in the broader trade tensions.
Assuming Trump does proceed with his plan to impose new tariffs on EU and UK exports to the U.S., EU and UK policymakers would have three crude options available to them: negotiation, retaliation or a combination of both strategies.
Both the EU and the UK would try to negotiate with Trump in the first instance to avoid any unnecessary economic pain. The EU had some success in this approach during Trump’s first term, when then EU President Juncker agreed to import more American soybeans and natural gas to avoid new U.S. tariffs.
The EU and UK could attempt to placate Trump by aligning with U.S. efforts to combat Chinese economic competition – one of the key priorities of a second Trump Presidency and something both the EU and UK are already concerned about, to varying degrees. This could include agreeing to increase tariffs on Chinese goods, restricting investment flows with China, or following U.S. steps on export controls. The EU has demonstrated that it is willing to be tough on China with its provisional tariffs on Chinese electric vehicles – although the tariff rates imposed are significantly lower than those by the U.S. The UK has not yet followed suit, but the threat of U.S. tariffs could force its hand.
However, while the EU will enter into negotiations with Trump armed with its own list of potential countermeasures and retaliatory instruments as leverage (discussed below), the UK’s options are underdeveloped. The relative size of the UK economy compared to the EU’s also means that any retaliatory steps would have a much more limited impact on the U.S. and carry less weight as a threat.
The EU has reserved the option of imposing major tariffs on U.S. goods shortly after the inauguration of the new U.S. President. These rebalancing tariffs, which target politically sensitive U.S. products such as Harley Davidson motorcycles and U.S. bourbon, were initially imposed in response to Trump’s tariffs on EU steel and aluminium during his first term. While these tariffs are temporarily suspended until 31 March 2025, they could be imposed quickly in response to U.S. actions or used as a bargaining tool during negotiations over new U.S. restrictions or policies.
Beyond this, the Commission’s arsenal of economic security tools has expanded in recent years and could offer a range of levers to use in retaliation to U.S. behaviour. These include:
The UK in contrast has fewer options available. While it has the same set of dormant rebalancing tariffs as the EU related to the dispute with the U.S. over steel and aluminium tariffs, these do not have an expiry date and would therefore require a pro-active, and potentially provocative, political decision to reimpose them. The UK also has dormant tariffs on U.S. goods related to the UK-U.S. Airbus-Boeing dispute (the EU has an identical set of tariffs) which could be an option but would have a limited economic impact on the U.S.
At the behest of the DBT Secretary of State or UK industry, the UK Trade Remedies Authority (TRA) could also open an investigation into certain U.S. goods, which could result in tariffs. But as an independent body, this could only happen if there was firm economic evidence that UK industry is being harmed by U.S. exports.
In practice, over the course of a Trump Presidency, the most probable outcome is some new U.S. trade restrictions, EU retaliation (UK is less likely but possible) and sporadic negotiated settlements to abate more excessive U.S. interventions. U.S. coercion would probably result in the UK introducing new restrictions on China in some instances, for example on electric vehicle tariffs.
In any event, businesses should expect uncertainty, disruption and potentially added costs when trading with the U.S., and ensure they are prepared accordingly.
Sam is a partner and leads Flint’s trade practice. Will is a manager in Flint’s trade and geopolitics teams who was previously an official in the Department for Business and Trade, the Foreign Office and the Brexit Department. Kathrynis a manager in Flint’s trade team who previously worked as a commercial advisor for the New Zealand government. If you would like help scenario planning the possible implications for your business or would like to discuss the issues covered in this note further, please contact us here.