By Harry Mottram: The old adage that when America sneezes Britain catches a cold is true economically but when the USA deliberately catches the flu then the UK will certainly be running for the paracetamol. President Trump’s imposition of tariffs on Canada, Mexico, China and the European Union as part of a global trade war has also hit Britain with his tariffs on aluminium and steel imports. The UK exports high quality steel to America along with aluminium which will now carry tariffs of 25% which the British Prime Minister described as disappointing. Canada has reacted with tit for tat tariffs on the Americans while Britain is being more cautious and waiting to see if the USA President flip-flops on the policy as he has repeatedly done in his first few weeks in office.
Trump’s reasoning is partly to convince his supporters that America is being ripped off by importers and that it will make imports more expensive with the result that Americans will buy more goods from American firms. Most economists think the move will increase costs in the United States for businesses and consumers especially if Canada and Mexico slash spending to the Americans with boycotts and tariffs of their own. This will goes the collective wisdom force up prices and inflation leading to interest hikes in order to prevent run away inflation.
The knock-on effect to the UK is a reciprocal hike in interest rates and the cost of borrowing along with an increase in inflation – the duel deadly economic torpedoes that blow up the economy. It’s generally thought however that as soon as the USA economy tanks and Wall Street sees huge sell offs that Trump will blink first and reverse the policies.
Ian Carrotte of ICSM said tariffs were not helpful as they tend to drive up costs for businesses. He said: “The last thing we need is the USA heading into a recession which Trump has already said is possible. If costs increase due to tariffs that will drive inflation and when that happens interest rates go up – so many firms operate on small margins which puts them in danger of insolvency. Look what happened when the Chancellor increased National Insurance last year – firms began laying off workers and some even went bust. In these uncertain times companies and the self-employed need to be very careful about spending and borrowing and try to rein in costs as much as possible as if it continues 2025 could be a very bumpy ride so hold on tight now.”
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ICSM, The Exchange, Express Park, Bristol Road, Bridgwater, Somerset TA6 4RR. Tel: 0844 854 1850. www.icsmcredit.com. Ian.carrotte@icsmcredit.com