You can't opt out of a global recession

Britain's efforts to secure Trump tariff exemptions miss the point

The argument is a straightforward one, as far as the UK government is concerned. Britain has a relatively even trading relationship with the United States, and should therefore be spared Donald Trump’s tariffs. Throw in concessions around the UK’s Digital Services Tax¹ that impacts large American technology companies and Keir Starmer might just be able to claim a deal to save the UK economy. Except, of course, it is never that simple.

First, about that “even” trading relationship. As it happens, both the US and UK report trade surpluses with the other, owing to discrepancies in how their respective statistical agencies measure trade in goods and services. Consequently, while the Office for National Statistics reported a surplus of £71.4bn with the US in 2023, the Bureau of Economic Analysis calculated a surplus of $14.5bn (£11.6bn) with the UK over the same period. You say either, I say either, I suppose.

Regardless, time is of the essence. Tariffs of 25% on all US car imports are set to take effect from 3 April. Given that America is Britain’s single largest export market for cars², worth £6.4bn last year, this is no small beer. Asked whether the UK could save its automakers from the tariffs, chancellor Rachel Reeves replied: “That’s what we’re working on. We’ve got a few more days left of those negotiations before these tariffs are due to come in.”

Of course, auto tariffs are by no means the totality when it comes to American plans for economic warfare. On April 2, Trump is expected to make a further announcement on what the White House will term “reciprocal” tariffs – even though the US started it. No one quite knows what they will be, though reports suggest that the president is encouraging his aides to “go bigger” ahead of what is being rather incongruously described as “Liberation Day”.

Pretend for a moment that the UK government achieves everything it could ever hope for and more. A carve-out on car tariffs, steel tariffs, all tariffs, and throw in an all-expenses trip for the cabinet to Disney World, Florida. This will still be a disaster for the UK economy, for the chancellor’s ever-disappearing fiscal headroom, and for the Labour government’s chances of re-election. That is because of spillover effects.

Tariffs and trade wars not only impact the countries directly involved: they hurt everyone. For example, analysis from EY found that Trump’s initial tariffs on the Canadian and Mexican auto sectors would reduce GDP in the European Union by 0.5% in 2026. Meanwhile, the Office for Budget Responsibility forecasts that UK GDP could be cut by a full percentage point under some trade war scenarios. And this is before we get to the big one.

Yesterday, Goldman Sachs raised its odds of a recession in the US in the next 12 months to 35%, up from 20%. The bank cites “the sharp recent deterioration in household and business confidence, and statements from White House officials indicating greater willingness to tolerate near-term economic weakness in pursuit of their policies.” In short, tariffs. And any US contraction would have global implications.

Yet the fact is there doesn’t even need to be a full-blown trade war to send the world economy into a deep freeze. The frankly bonkers manner in which these tariffs are being announced, unannounced and then reannounced could do that on its own. Large businesses with complex supply chains that span different countries are postponing investments as confidence ebbs away and global markets tumble over the ensuing uncertainty.

None of this is to say that the UK government should not try to shield its automotive sector and wider economy from unjustified US tariffs. Simply that there is an element of displacement activity going on here. Ultimately, Britain – a mid-sized, open economy – is at the whim of a Trump administration that is not even putting the American economy first, let alone anyone else’s.

If the bottom does indeed fall out from the global economy, Reeves, who has once again left herself precious little fiscal headroom, will be forced to return to the Commons in the autumn to announce further tax rises and spending cuts in order to meet her fiscal rules. At which point, no one will much care what the government negotiated around cars.

1. Forecast to raise £1bn a year from 2026-27

2. The EU is the largest importer, but the US is the largest single country