The UK economy is likely to feel the indirect effects of trade tariffs proposed by U.S. President-elect Donald Trump, even if it avoids being directly targeted, UBS analysts have cautioned.
While the primary impact of potential tariffs is expected to hit Europe and other major trading partners, the global interconnectedness of trade leaves Britain vulnerable to the broader fallout.
According to UBS, the UK’s modest goods trade surplus with the U.S.—just £2.4 billion in 2023—makes it a lower priority for Washington’s tariff actions. In contrast, the European Union recorded a significantly larger goods trade surplus of €177 billion with the U.S. during the same period, positioning the EU as a likely focus for measures aimed at reducing bilateral trade deficits under Trump’s administration.
The UK’s trade balance is further supported by a strong surplus in services, estimated at nearly £69 billion in 2023. Services, unlike goods, are not expected to face new tariffs, offering the UK some economic protection.
However, UBS analysts warn that this relative insulation does not shield the UK from the wider economic ramifications of a tariff-induced slowdown in global trade.
Even if the UK escapes direct tariff measures, its economy remains closely tied to its trading partners, particularly the EU, which continues to be Britain’s largest trading partner post-Brexit. Any economic disruption in the EU caused by U.S. tariffs on European goods could ripple through to the UK, affecting its economic stability.
A global trade slowdown would inevitably impact UK exports to the EU and other regions, exerting indirect economic pressures. UBS highlights that as a “small, open economy,” the UK is particularly vulnerable to changes in global trade dynamics.
Although trade relations between the UK and the U.S. have historically been strong, with relatively balanced trade flows compared to other regions, UBS analysts advise against complacency. They emphasize that the uncertainty surrounding U.S. trade policies could still dampen business confidence and influence investment decisions in the UK, even in the absence of direct tariffs on British goods.
The analysts note that while tariffs may not pose an immediate threat to the UK economy, their ripple effects could exacerbate the challenges Britain faces in navigating an already fragile global economic environment.
For now, the UK’s strategy is focused on mitigating the secondary impacts of shifts in trade policy while leveraging its competitive advantage in the services sector to strengthen economic resilience.
