Donald Trump has announced new US tariffs on imports from Canada, Mexico, and China, and hinted that the European Union could be next.
While any direct impact on the UK would depend on whether the White House follows through with tariffs on British goods, Trump’s protectionist stance is likely to hit the global economy—and an open, trade-driven country like the UK could feel the pinch. Here’s what to watch for.
Global trade slowdown and the UK economy
Even if UK exports to the US are not immediately targeted, higher tariffs on close economic partners—such as the EU—could discourage international commerce more broadly. That slowdown in global trade volumes may cause:
• Lower economic growth: The UK is a highly open economy and depends on trade flows. If global trade weakens, British businesses in export-oriented sectors could see falling demand.
• Higher inflation pressures: Tariffs typically raise the cost of imported goods, fuelling inflation. Financial markets could price in further interest rate hikes in response—particularly in the US, but with knock-on effects for the UK through intertwined bond markets.
Rising borrowing costs for the government
When investors anticipate higher inflation, US interest rates often rise. Historically, UK government bond yields (gilts) move in tandem with US Treasury rates. If US borrowing costs climb:
• Higher gilt yields: The UK government will have to pay more interest on its debt, pushing up the cost of borrowing and complicating fiscal planning.
• Potential spending cuts: Chancellor Rachel Reeves has self-imposed fiscal rules. If borrowing costs surge, she may be forced to scale back public spending in order to stay on track.
Impact on the FTSE 100
Market sentiment frequently suffers during trade disputes. Weekend trading on brokerage IG’s markets suggests the FTSE 100 could drop when markets open on Monday. That means:
• Investor losses: A weaker FTSE 100 spells poor short-term returns for pension funds and other investors with shares in large British companies.
• Heightened volatility: Global uncertainty could hamper corporate confidence and disrupt plans for investment or expansion.
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