The UK Government is under increasing pressure to respond to US President Donald Trump’s latest trade measures, which threaten to impose tariffs in retaliation for Britain’s VAT policies on US goods.
Mr Trump announced on Thursday that he would introduce “reciprocal tariffs” on all trading partners, arguing that it was only “fair” to charge the same amount in levies that other nations impose on American exports. The policy published by the White House includes VAT as a potential target, raising concerns over how the UK will be affected.
Speaking on Thursday evening, senior minister Pat McFadden said the Government would not “overreact” but would instead “wait and see” whether the proposed tariffs “actually come to pass.” He told Sky News: “Sometimes tariffs are announced, and a couple of days later, they are unannounced.”
The Chancellor of the Duchy of Lancaster also stated that there remained “a lot of unanswered questions” about the extent of these tariffs. “We took the decision that we wouldn’t breathlessly chase every headline coming out over the last month. I think that’s the right decision,” he said.
The White House’s trade policy document, published on Thursday, sets out broad retaliatory measures, not just against tariffs but also against what it calls “unfair or harmful acts, policies, or practices.” These include government subsidies, restrictive regulatory requirements on US businesses, and barriers to American agricultural products. The latter could impact UK food safety regulations, which currently prevent imports of certain US goods, such as chlorine-washed chicken.
One of the most contentious points in the document is the explicit reference to VAT as an “unfair, discriminatory, or extraterritorial tax.” This stance has raised eyebrows, as VAT applies uniformly to both domestic and imported products, making it unclear why the US sees it as a trade barrier.
Mr Trump’s approach to international trade has frequently strained relations with America’s closest allies. Earlier this week, he imposed a 25% tariff on steel imports, adding to a growing list of protectionist measures. Although Canada and Mexico were initially targeted, these tariffs were later suspended for 30 days following negotiations.
The European Union and Canada have already prepared countermeasures should these tariffs be enforced, while China has responded to a previous 10% tariff on its exports to the US. However, Mr McFadden declined to confirm whether the UK would follow suit.
He stated: “How mature would it be for me to walk into a studio five minutes after some announcements and say, ‘Yeah, we’re going to retaliate’? That’s not the way you make policy.”
While reaffirming that the UK would always “stand up for the national interest,” he emphasised the importance of maintaining stable trading relationships worldwide. “The best thing in the national interest is to maintain a good trading relationship with everybody we need to,” he added.
The newly announced tariffs will not take immediate effect, as President Trump has instructed his advisers to conduct investigations into foreign trade practices before implementing any measures.
Following the announcement, the British Chambers of Commerce (BCC) expressed concerns that the proposed tariffs could “upend established trade norms” and lead to “more cost and uncertainty for investors, businesses, and consumers across the world.”
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William Bain, head of trade policy at the BCC, urged the UK Government to avoid escalating the situation. “We must not get sucked into a trade war of tit-for-tat tariffs, which could easily spiral out of control,” he warned.
He advised ministers to use the available time before any tariffs take effect to negotiate alternative trade arrangements with the US. “If they do not, then sectors such as automotives, pharmaceuticals, and food and drink could be significantly hit, as higher tariffs inevitably feed through into globally higher prices for consumers,” he added.
The economic stakes are high, given that UK-US trade is worth approximately £300 billion annually. The UK currently imports slightly more from the US than it exports, a fact that ministers hope will help secure exemptions from any new tariffs.
While most British exports to the US are in the services sector, the UK still exports over £8 billion worth of cars and more than £6 billion worth of pharmaceutical products to the US. It remains unclear whether Thursday’s announcement will directly impact services trade, but any additional costs imposed on UK goods could have significant ramifications for key industries.
As the situation unfolds, businesses and policymakers alike will be watching closely to see whether Mr Trump follows through with his tariff plans—and how the UK Government chooses to respond.
