The UK government is worried a “tariff war” between the US and other countries could lead to higher inflation and unemployment, the trade secretary has said.
Jonathan Reynolds, the business and trade secretary, warned the UK was particularly vulnerable to the impact of US tariffs because it was a “very globally oriented economy” reliant on international trade and investment.
During his election campaign, Donald Trump pledged to introduce a blanket 20% tax on all foreign goods to protect domestic industries, despite warnings that such a move would fuel US inflation.
British ministers are hoping that despite his pledge, Trump, who will be inaugurated as president on Monday, will introduce more limited tariffs focusing on particular sectors and countries, which could spare the UK. Earlier, Trump refuted a report that his team was exploring tariff plans that would only cover critical imports.
Asked if he was worried about a tariff war, with countries responding to new US tariffs by introducing their own, Reynolds said: “I am, because the UK is a very globally oriented economy so the exposure, the danger to the UK is actually greater than even some comparable countries.”
However, he argued that Trump was motivated by the US trade deficits with China and the EU, and that the UK was “in a different position”.
He told Sky News: “We’re well prepared for this, we’ve got a good argument to make, and I think there is a chance, actually if we play this right, to get an even better relationship out of some of these things that have been put forward. But we can’t be complacent – and there are risks, yes, of a tariff war.”
Reynolds warned that tariffs could lead to higher inflation and unemployment. “Tariffs are paid by your own people. It’s got real pressures in terms of your inflation, in terms of your ability to employ people, to export to other markets,” he said.
He stressed the UK government had made extensive preparations for tariffs and had been “engaging early with the new administration” in the US.
Keir Starmer has appointed Peter Mandelson, the New Labour-era business secretary and EU trade commissioner, as Britain’s ambassador to Washington and tasked him with negotiating better trade terms with the US.
Reynolds said Trump’s administration was “going to be a challenging time for anyone that’s responsible for trade in a big economy because of some of those pledges that were made during the campaign”.
However, he said there were also opportunities including the prospect of working more closely with the US on technology and digital trade in the services sector. “If there’s an offer from the US to talk about how we can collaborate closer together on that of course we’ll take a look,” he told Sky News.
He argued that the UK was well-positioned to become a close trading partner to the US, the EU and emerging markets including India, China and the Gulf states.
Asked about the Liberal Democrats’ call for the UK to rejoin the EU customs union, Reynolds told BBC Breakfast: “The problem to be frank for the Lib Dems is they only ever think about Europe.
“Of course it’s a major market, but this is a government that wants to improve that relationship with the EU but also wants to do work with the US, with India, with the Gulf. I think the UK could be positioned as the best economy between those major trading blocs.”
