Trump’s trade war could have a clear winner: The UK
General view of the City of London skyline, the capital’s financial district, in October.
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Global markets were hit with fresh volatility this week after U.S. President Donald Trump confirmed plans to impose tariffs on imports from three of America’s biggest trading partners.
Trump on Monday agreed to pause for 30 days 25% tariffs on imports from Mexico and Canada, after both countries agreed to take steps to clamp down on opioid fentanyl crossing their borders into the United States.
There was no pause for China, however, which faces 10% import tariffs — and has subsequently retaliated with tariffs of up to 15% on American goods.
Further afield, European economies are also at risk from Trump’s tariff regime. The U.S. president told reporters on Sunday that tariffs on the EU “will definitely happen” — but said a deal “could be worked out” with the U.K., a nation with which U.S. trade is more balanced.
“The U.K. is out of line. But I’m sure that one, I think, that one can be worked out,” Trump told reporters, adding that he was “getting along very well” with the U.K.’s left-leaning Prime Minister Keir Starmer.
Starmer told reporters this week that he had discussed trade in talks with Trump, and would not choose sides between the U.S. and the EU, according to The Guardian.
U.K. Finance Minister Rachel Reeves, meanwhile, insisted last month that Britain is “not part of the problem” when it comes to the trade deficits Trump is looking to correct with his tariff policies.
The U.S. was the U.K.’s biggest trading partner in the year to September 2024, according to official data, accounting for over 17% of total U.K. trade.
Depending on which figures you look at, the two countries either have a small trade deficit or surplus. What’s important for Trump, though — who hates it when the U.S. exports less to a country than it imports — is the numbers are almost balanced.
As the British economy struggles — with Reeves saying last month that she was “fighting every single day to kick start” growth — several analysts told CNBC the economy could get a boost from Trump’s trade war.
Irina Surdu-Nardella, a professor of international business and strategy at Warwick Business School, told CNBC that even if the U.K. does get hit with tariffs, the impact may be more muted than expected.
“In reality, the effects on the U.K. market would be relatively limited to industries such as fishing and mining,” she said. “The service-focused nature of the U.K. economy shields it significantly from the consequences of tariffs. Tariffs are particularly detrimental to industries with complex supply chains, where goods cross the border multiple times as firms seek to turn inputs into final goods. Again, this is not the case for the U.K. market, which mainly exports banking and consultancy services to the U.S.”
The U.K.’s five biggest goods exports to America were cars, medicines and pharmaceutical products, mechanical power generators, scientific instruments and aircraft, with a total combined value of £25.6 billion ($31.8 billion).
The value of those exports was dwarfed, however, by those of its biggest services exports, including financial services and insurance, which had a total combined value of £109.6 billion.
Neri Karra Sillaman of the University of Oxford’s Said Business School said that avoiding tariffs altogether is the ideal scenario as it could bolster Britain’s key industries.
“If the U.K. remains tariff-free, it could be uniquely positioned to attract investment, talent, and new trade partnerships,” she told CNBC on Tuesday.
“With tariffs pushing businesses to find more cost-effective hubs, the U.K. could become a preferred gateway for companies looking to bypass restrictions,” she said. “Sectors like luxury, fashion, pharmaceuticals, and advanced manufacturing — where the U.K. already excels — could see an influx of investment and trade opportunities.”
U.K. sectors including the automotive, aerospace, and financial industries could also benefit from increased demand if American buyers looked beyond tariff-hit suppliers, she added.
“We have seen these patterns before — every trade war shifts the global economic balance, and this could be a moment for the U.K. to capitalize on change, be an active player rather than a bystander,” Sillaman told CNBC.
Alex King, a former FX trader and founder of personal finance platform Generation Money, agreed that Trump’s policies could provide Britain with some economic relief.
“When the U.S. first imposed tariffs on China, Chinese manufacturers routed many of their goods through Vietnam and Thailand to the U.S. to avoid tariffs,” King said via email. “If the U.K. does avoid tariffs, it is in a potentially advantageous position to benefit from similar routing from the EU.”
King also argued that the British pound could emerge as “a major winner” of a potential trade war, noting that after Trump’s initial tariff confirmations last week, the pound rose against the euro, the Canadian dollar, and Australia and New Zealand’s currencies.
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He said this was a sign global investors “may see the U.K. as a potential safe haven.”
“Ultimately, the U.K. could be one of the few major economies with relatively tariff-free access to both the U.S. and the EU, making it — and the pound — a potential winner.”
On Tuesday, sterling pared some of its gains against the euro to trade marginally lower around 83.13 pence per euro. The pound strengthened against the U.S. dollar, however.
Dan Boardman-Weston, CEO at BRI Wealth Management, said the U.K. had a “fighting chance” of avoiding U.S. tariffs, making it an attractive market for investors.
“If Trump proceeds with tariffs on other countries, it’s plausible more goods end up in the U.K. and that this depresses inflation,” he said. “Greater inward investment into the U.K. is also likely if tariffs get worse and become a more permanent feature of the global trade landscape.”
He noted that interest rates are now likely to fall further and faster in the U.K. than the U.S., which could spark a re-rating of British companies alongside falling yields on U.K. government bonds, known as gilts.
“When this is coupled with the relative political stability of the U.K. and cheap valuations, the U.K. is the place to be overweight for 2025,” he argued.
It means the U.K-versus-Europe dynamic has changed, according to Chris Metcalfe, chief investment officer at IBOSS Asset Management.
“For foreign investors, since 2016, there have been reasons to pick an EU area country over the U.K., principally because it’s simply a bigger market,” he told CNBC on Tuesday.
“Although Trump’s tariff policy can look chaotic and muddleheaded, it is hard to see a scenario where he reverses course and imposes more tariffs on the U.K. rather than the EU. This is undoubtedly creating a positive backdrop for attracting U.S. companies and investment into the U.K., especially given the political chaos in France and Germany.”
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