Donald Trump’s new tariffs on US imports, announced on Wednesday 2 April, ushered in a new era of global trade competition. According to the US President, the tariffs will strengthen the US economy through increased revenues for US-made products and lead to re-shoring in manufacturing and production. The counterargument held by many politicians and economists is that tariffs will raise inflation, hurt consumers – both in the US and globally, and cause greater global economic uncertainty.
What tariffs has Trump introduced?
- A baseline universal tariff of 10 per cent on imports from all countries, effective 5th April.
- Higher tariffs, varying in severity, on the countries with which President Trump has deemed the United States has the largest trade deficits, effective 9th April.
The tariffs target trade in goods. But there are some exemptions: semiconductors, pharmaceuticals, copper and lumber, as well as bullion, energy and minerals not found in the US. Cars and car parts already hit with 25 per cent tariffs by the US will also avoid additional tariffs.
The European Union and the United Kingdom have therefore both been hit. While the UK faces the universal tariff of 10 per cent – considered a win by Prime Minister Keir Starmer’s team – a 20 per cent tariff has been imposed on the EU, accused, among other countries, of “looting, pillaging, raping and plundering” the US.2The new tariffs are in addition to previously announced tariffs on car imports, steel and aluminium.
What has the response been?
There has been widespread disappointment and criticism of the decision taken by President Trump. With several countries already preparing strong responses to the US’ tariffs on car, steel and aluminium imports, there are fears that these latest measures will escalate the situation further.
China, which will now face a 54 per cent total tariff for goods exported to the US, has vowed countermeasures to safeguard its own interests. In a statement on Thursday (3rd April) morning, European Commission President Ursula von der Leyen vowed to finalise the countermeasures in response to the tariffs on steel, prepare further countermeasures, and continue to seek negotiations with the US.3The reality, however, is that EU-US trade negotiations are not moving quickly.
If the EU is pursuing a two-track approach of retaliatory measures combined with negotiations to reduce the tariffs, there are countries that are focusing solely on the latter.
Keir Starmer has consistently advocated in favour of a so-called ‘Economic Prosperity Deal’ with the US, “in the UK’s interests”.4While the Prime Minister has criticised President Trump’s measures and reiterated that “nothing is off the table”, this is nothing more than empty rhetoric. The UK’s economic reality is so dire that he can ill-afford to chide the US into tougher action. Starmer’s focus is on getting a deal.
The leaders of two other US allies, Japan (24 per cent tariff) and South Korea (25 per cent), have also played down retaliatory measures in favour of direct negotiations.
Tellingly, global markets responded negatively to Trump’s announcement. The US dollar hit a six-month low, the UK FTSE 100 fell 1.3%, Japan’s Nikkei fell 3.3%, Germany’s Dax was down 1.6%. The Nasdaq was down 3.5%, reflecting major depreciations in value of major tech firm shares, including Apple and Nvidia.
Troubling times for big tech
The plight of the Nasdaq reflects the expected impact on the US tech manufacturing sector. Companies such as Apple, Amazon, Nvidia, and others rely on supply chains that include many Asian countries. While semiconductors – critical to many of these companies – are exempted from tariffs as things stand, other import tariffs will substantially increase production costs and may even disrupt supply.
At the same time, US big tech finds itself at the centre – some might even say a bargaining chip – of negotiations between the US and the EU.
European Commission Executive Vice-President Teresa Ribera is this week in Washington DC for the annual Spring Meeting of the American Bar Association’s antitrust section, in the margins of which she will meet with US Federal Trade Commission Chair Andrew N. Ferguson.
The visit coincides with the finalisation of the European Commission’s high-profile investigations under the Digital Markets Act (DMA) into Apple and Meta. In theory, the outcomes should be solely based on the merits of the case under EU anti-trust law. In reality, these investigations have now become embroiled in geopolitical tensions, trade negotiations, and tariff retaliation between two of the world’s biggest economic players.
What next?
It seems inevitable that there will be retaliation from some quarters. China, Canada and the EU, for example, have already set out their stalls in this respect. A European Commission trade spokesperson on Wednesday said that there would first be a response to the steel and aluminium tariffs, and then a second response to the latest tariffs, including on cars.5No timeline has been given. Then, it becomes a case of whether the US President exercises restraint (not something he is known for), or whether he increases or expands in scope the duties, per the Executive Order.
In parallel, the UK and EU have both also initiated consultation mechanisms. Strategic Dialogues with the steel, automotive, and pharmaceutical industries have been announced by the European Commission6, while the UK government immediately invited UK businesses to comment on options to shape the UK’s response7. These will be important vehicles for stakeholders to express concerns.
There does also seem to be a willingness on the part of most countries – with the UK, Japan and Korea at the front of the queue and the EU jostling for attention – to negotiate with Trump. For China, could this involve a solution on TikTok? For the EU, what will become of the DMA?
Quite whether economic deals – or broader – can be made that protect Country X, Y, or Z’s national interests and satisfy Trump’s demands, however, remains to be seen.
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By Nicola Scocchi, India Knight, and Adam Kaznowski
