Britain may no longer be a manufacturing hub but it still managed to export more than £60 billion of goods to the US over the past year. Most of those exports are now going to be subject to 10 per cent tariffs, although there will be some exemptions and some higher rates.
The tariff is not paid directly by the British manufacturer but by the importer in America, who will have to pay 10 per cent of the value of the goods imported to the US custom authorities. However, the importer recovers this cost by increasing the price of the items when it sells them to retailers and distributors, who ultimately pass on the cost to shoppers.
In effect therefore, the cost of the tariff will be borne by American consumers but British companies will suffer because it means their goods will be more expensive and demand for them will probably fall. Here we look at the likely impact sector by sector.
Automotive
Britain’s car industry is arguably the biggest victim of Trump’s “liberation day”. As of 5am on Thursday manufacturers were hit by a 25 per cent tariff — the same level as that applied to steel and aluminium imports.
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British carmakers sold £9 billion of vehicles to the US last year, making it Britain’s largest single export. Wealthy Americans are big fans of luxury British cars — Jaguars, Land Rovers, Rolls-Royce and Aston Martins. The last of these sells more cars in the US than at home.
The manufacturers now face “extreme pressure” with up to 25,000 jobs at stake, according to the Institute for Public Policy Research think tank. It says Jaguar Land Rover and the Mini factory at Cowley are the most exposed. More than 26,000 Mini brand vehicles were sold last year in the US.
Mike Hawes, of the Society of Motor Manufacturers and Traders, said: “These tariff costs cannot be absorbed by manufacturers, thus hitting US consumers who may face additional costs and a reduced choice of iconic British brands, whilst UK producers may have to review output in the face of constrained demand.”
Food and drink
Food and drink is Britain’s fifth-biggest export and a significant proportion of it — about 10 per cent — goes to the US.
The UK has a healthy trade surplus with the US in this area, with food and drink worth £1.6 billion exported last year and the value of imports only £1 billion. Our exports include 50 million cups of tea and 50 million biscuits a month.
However, the volume of exports will inevitably fall going forward as prices rise for US shoppers, triggering many to look for cheaper domestic alternatives.
The extent to which the price of British goods on US shelves will rise depends on how much of the tariff exporters can absorb. Generally speaking, margins on food production are quite low so there will be little capacity to take a hit and if UK companies do, it will mean lower profits.
One of the UK’s biggest exports to America is spirits, particularly Scotch whisky, with exports totalling £971 million last year so the tariffs could devastate distilleries. In 2019, when Trump imposed a 25 per cent tariff on whisky, later withdrawn by President Biden, whisky shipments to the US dropped 25 per cent.
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The one bright spot is that the tariffs imposed on British food and drink will be only half as high as the tariffs imposed on exports from the EU and much less than some other countries. So it is conceivable that US shoppers still wanting overseas products might switch to UK-produced items instead.
For example, a bottle of English fizz might go up by only 10 per cent in the US, while a bottle of French champagne might go up by 20 per cent, making the English option relatively cheaper even though it is more expensive in absolute terms.
Defence
The UK does not sell warships, submarines or aircraft to the US, though British arms manufacturers do export £2.5 billion of components used in US weapons.
Examples of US weapons with British-made components include the F-35 stealth fighter jet and Tomahawk cruise missiles. The government claims 15 per cent of every F-35 is made in the UK.
Kevin Craven, of ADS, the defence sector trade body, said the 10 per cent tariff was “disappointing” but would not “kill our sectors”. He added that the greater concern was that the 25 per cent tariffs already announced by Trump on steel and aluminium could create a “scarcity mindset”, driving up prices of raw materials.
If steel becomes more expensive, there is a risk that existing major British defence projects will run over budget.
Britain is set to spend tens of billions of pounds over the next decade manufacturing Dreadnought-class submarines, Type 26 frigates and Tempest fighter jets — all of which require steel and aluminium.
Steel
While steel exports to the US are a relatively small part of the balance of payments — adding up to about £370 million of exports — it is the collateral damage that the tariffs will create which is worrying steel companies.
With the US putting up its protectionist barriers there is now huge amounts of steel from low-cost economies that may have been bound for America which may now end up in the UK, further undermining the tricky situation that Tata Steel and British Steel find themselves in.
British Steel recently announced the closure of its blast furnaces with the loss of up to 2,700 jobs citing the US tariffs as one of the direct reasons.
The industry lobby group UK Steel has called for the government to intervene. It said: “We cannot afford to wait any longer as our exports are being damaged, and our market is being undercut by rising imports.”
Pharma
There was widespread concern on Thursday for Britain’s pharmaceutical industry but there was relief for the British-based GlaxoSmithKline and AstraZeneca after a clarification from the Trump administration said that medicines and pharmaceuticals would be exempt from the reciprocal tariffs.
Medicinal and pharmaceutical goods are one of Britain’s top exports to the US, with exports to the country worth £6.5 billion last year. GSK makes more than half of its sales in the US, and AstraZeneca two fifths.
Despite concerns, a fact sheet circulated by the White House suggests that pharmaceuticals will not be affected by the tariffs.
But while not directly victim to the tariffs, the industry is still likely to be subject to price rises. Pharmaceutical companies rely on a complex global supply chain for raw ingredients, and much of this could face disruption due to the global tariffs.
Energy
Experts said Trump’s tariffs would not affect UK energy prices in the short term, but over time they could indirectly raise energy bills.
The UK imports gas from the US, which is supercooled to -162C and transported as liquefied natural gas on ships to terminals around Britain. Gas provided 35 per cent of UK electricity in 2023, and is still the key fuel for most homes’ heating.
If the price of goods rises in the US, that could mean more domestic American production, requiring more gas and leaving less for export — pushing up the cost of LNG imports for the UK.
“The UK will see higher gas prices, with a knock-on effect on retail gas and electricity bills,” said Anise Ganbold, of Aurora Energy Research.
Research and Development (R&D)
Experts fear Trump’s tariffs will hinder innovation, both in the US and beyond.
One issue is corporate profitability. Pharmaceutical firms, among the largest funders of life sciences R&D, are set to face rising costs. The same is true for other sectors — from the car industry to semiconductors.
Squeezed profits are likely to force difficult decisions and R&D spending may be an early casualty. As industrial partnerships fund much of the broader research ecosystem, the knock-on effects could include a broad slowdown in scientific progress.
Start-ups that rely on venture capital could also struggle. Rising interest rates — driven in part by inflationary pressures linked to tariffs — may make fixed-income investments more attractive. Investors could shift capital away from high-risk – but potentially high-reward — “moonshot” projects in sectors such as biotech, robotics, green energy or AI.
Reporting by Andrew Ellson, Ben Clatworthy, George Grylls, Adam Vaughan, Poppy Koronka, Robert Lea and Rhys Blakely
