- President-elect Trump views persistent bilateral trade deficits as a direct threat to US economic interests and will seek to limit imports and promote exports in his second term. Trump threatened to impose a universal tariff on US imports of 10-20% as a corrective measure throughout the 2024 election campaign.
- Governments worldwide expect Trump to implement his universal tariff plan quickly. However, tariff implementation could be phased, and there will probably be a range of product, company, and country-specific derogations. In many cases, tariff threats will be an opening gambit for negotiations rather than the intended outcome. For example, he has threatened to impose a specific (25%) tariff on Mexico and Canada unless they take measures to curb the movement of drugs and migrants into the US.
- The EU, UK, and other countries will attempt to negotiate with the incoming Trump administration to alleviate the impact of new US tariffs. However, if countries are unable to reach an agreement with the US and face new tariffs, they may retaliate with their own tariffs or use other mechanisms to target the US and US firms, creating greater commercial uncertainty.
- Businesses should ensure they understand the potential risks and opportunities that new US tariffs could have on their global operations and appropriately develop their engagement strategy with both the US government and governments in the markets in which they operate. Flint can help you assess these risks and develop strategies to mitigate them.
To understand how shifts in US trade policy under Trump could reshape global supply chains and competitiveness, read our blog ‘The Trump effect: how US trade policy is reshaping global supply chains and competitiveness’:
Scenarios
We consider three scenarios of new US tariffs, their probability, how they would impact exports to the US, and second-order consequences.
- US imposes full implementation of universal tariff (15% probability)
Scenario: The US introduces a new tariff floor of 10-20%, applied to all imports with limited exceptions. Individual countries, such as Canada, China, and Mexico, may face higher rates (as indicated by the recent announcement). This could lead to retaliatory tariffs from US trading partners, including the EU, China, and possibly the UK, targeting sensitive US products. Trump would probably use Presidential Executive Order powers to introduce a universal tariff but could face legal challenges to its implementation from domestic opponents and pushback from other Republicans.
Possible impact and response
- A 10-20% tariff uplift on exports to the US would reduce the competitiveness of UK and EU imports in the American market compared to US-based manufacturers. However, EU and UK companies would continue to compete on a level playing field with exports from other territories, such as Japan. Chinese exports would face a higher tariff ranging from 10 to multiple 100s of %, making some commercially unviable in the US.
- The EU would likely retaliate by reimposing its Section 232-response rebalancing tariffs (initially levied in response to US tariffs on EU steel and aluminium) on sensitive US products such as Harley-Davidson motorcycles and US bourbon from 1 April 2025. Additionally, the EU may explore other economic security measures, such as using the Anti-Coercion Instrument to impose penalties on US firms operating in and exporting to the EU.
- The UK also holds dormant tariffs on US goods related to the Section 232 tariffs on steel and aluminium, but reimposing them would require a deliberate and potentially provocative political decision.
- Other countries, including China, would likely impose retaliatory duties on US exports or use mechanisms such as its anti-coercion law. This would not immediately affect UK or EU exports to the US, but it would disrupt global supply chains and potentially catch goods in broader retaliatory measures. A US-China trade war would have a widespread global impact and could result in Chinese exports being redirected towards Europe.
- US headline implementation of universal tariff but accompanied by numerous country- and company-specific derogations (75% probability)
Scenario: The US introduces a so-called universal tariff, accompanied by numerous country, company, and product-specific exceptions. These could result from new or existing deals with third countries, formal exemptions granted by the US Trade Representative (USTR), or product-wide exclusions in the implementing legislation. Many of these exceptions could be temporary, intended to pressure specific countries into agreeing to new concessions in return for longer-term exemptions.
Possible impact and response
- In this scenario, the likelihood of certain goods being excluded from the universal tariff increases, either through product- or company-specific exemptions or through negotiations between the EU/UK and the US. However, this also raises the comparative risk for the UK or EU products that do fall within the scope of new tariffs. For example, if the UK fails to gain an exemption for its exports, its products may lose price competitiveness against both US-produced alternatives and foreign-competitor products (e.g., from Japan or South Korea) that do.
- The sectors most vulnerable to new US tariffs include pharmaceuticals, automotive, chemicals, and food and drink. The global shipping industry would also face indirect consequences, possibly through a rise in container prices.
- While retaliatory tariffs from affected countries remain a possibility, there is also more room for avoiding such measures through negotiations. Companies with diverse product lines across different markets may experience varied impacts—UK-produced goods, for example, could benefit from more favourable treatment than those from the EU.
- As part of its country-specific deals, the US might pressure markets such as the UK to replicate its high tariffs on Chinese imports. This could create difficult trade-offs for certain sensitive UK and EU exports, which are at acute risk of being targeted by Chinese retaliation.
- This scenario introduces significant ongoing commercial uncertainty, with outcomes heavily influenced by both domestic US political pressures and the personal relationships between companies and members of the Trump administration.
For a broader view on how global trade policy is evolving in this period of uncertainty, you may also like our blog ‘What does 2024 hold for global trade policy?’
- US retains status quo ‘Continuity Biden Plus’ (10% probability)
Scenario: The US maintains the ongoing ‘America-first’ approach, likely introducing additional high tariffs on sensitive sectors, such as electric vehicles, and countries, such as China, but not enormously out of step with the actions of the current Biden administration.
Possible impact and response
- There is less direct risk to companies of additional duties when selling into the US and less indirect risk of retaliatory tariffs from third countries. However, there would still be a high degree of commercial uncertainty as the process of deciding whether to impose tariffs plays out, requiring significant contingency planning. In the longer term, international manufacturers may seek to grow their US footprint to insulate themselves against perpetual political uncertainty and the risk of future tariffs.
What does this mean for business?
With the potential for a universal tariff and targeted exemptions, companies should proactively engage with US and non-US policymakers ahead of Trump’s 2025 inauguration. This includes engaging directly with the incoming US administration to make the case for product-specific exemptions and encouraging the UK and EU to negotiate with the US and avoid retaliation – while carefully considering the knock-on effects of acceding to Trump's demands (e.g. tariffs on China) for other markets. Companies should also conduct a comprehensive review of supply chains for cost-effective adjustments to mitigate the impact of any new US tariffs, possible retaliatory tariffs, and new third-country tariffs on other imports, such as those from China.
With the UK currently building its own Trade Strategy (due for publication in Spring 2025), now is a critical time to engage with government.
This blog was written by Partner Sam Lowe and Managers Kathryn Watson and Will Haworth. Sam leads Flint's trade expertise. He advises clients on UK and EU trade policy, with a particular focus on regulatory barriers to trade, customs and trade in services. Kathryn supports clients on policy and political issues in the UK, with a focus on trade, food and drink. Will advises clients across a range of policy areas and sectors, particularly on geopolitics and trade.
