Donald Trump’s tariffs: what’s happening and what could it mean for the UK?

In recent days, President Donald Trump has announced a series of new tariffs on imports into the US which have threatened to ignite a trade war.

As of Tuesday, the US has suspended the introduction of 25% tariffs on Mexico and Canada that were due to come into force, following eleventh-hour negotiations with the two nations. The charges will be delayed by at least 30 days. 

However, 10% tariffs on goods from China are now in place. 

This explainer looks at what tariffs are, why they are being introduced in the US and what impact they might have on the UK. It was last updated at 4pm on Tuesday 4 February and the information below is correct as of then.

With developments unfolding rapidly, we’ll be updating this article in the coming days. If you’ve seen something we should add, spotted a claim for us to fact check or have a question you’d like us to answer, please let us know here.

What are tariffs?

Import tariffs are a form of taxes charged on goods imported from other countries. 

They can be levied in various different ways, such as by the number, weight or volume of items, but the tariffs announced by Mr Trump are ad valorem tariffs, meaning the amount due is calculated as a percentage of the value of the product.

A 10% tariff means an item costing $10 would attract an additional charge of $1. 

In addition to being the world’s largest economy, the US is also the leading global importer, pulling in $3.2 trillion worth of goods in 2023. So increasing the cost of selling to the US has the potential to significantly impact the global economy.

Why has President Trump introduced tariffs?

Raising tariffs can be a way of protecting domestic industries, as they make it more expensive to purchase goods manufactured abroad. This prevents local manufacturers from being undercut by imports.

For example, last year the EU imposed duties of between 17% and 35.3% on Chinese-manufactured electric vehicles, amid concerns that European car manufacturers were unable to compete with what the EU described as “unfair” subsidies available to their Chinese counterparts. 

This isn’t just about trade though. The White House has also described the introduction of tariffs as “using our leverage to ensure Americans’ safety”—Mr Trump initially said they were being introduced to encourage Canada and Mexico to reduce illegal immigration over the US border, and to encourage China to clamp down on the flow of precursor drugs used to manufacture fentanyl. 

President Trump had planned to introduce a 25% duty on imports from Mexico and most imports from Canada, with Canadian oil hit by a lower 10% levy. Chinese goods face a 10% tariff. 

All three countries had threatened to retaliate by imposing tariffs of their own on imports from the US, but the suspension means Mexico and Canada have not gone ahead with this. China’s finance ministry has announced retaliatory tariffs of between 10% and 15% for US oil, gas and coal, as well as farm equipment and some cars, starting on 10 February. 

Who pays tariffs?

Donald Trump has repeatedly suggested that tariffs are paid by foreign countries. During his inauguration speech, for example, he said: “Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.”

It is actually companies importing the goods into the US that will pay the levy though, and the question of where the burden of the tariffs ultimately falls is uncertain. 

The companies importing goods may choose to pass the additional costs on to consumers in the form of higher prices. They may choose to absorb the costs themselves, and take lower profits. Or alternatively, it’s possible that foreign manufacturers exporting goods to the US could lower their prices, which would likely impact their profits. 

According to Peter Levell, deputy research director at the Institute for Fiscal Studies (IFS), the evidence from tariff increases under the last Trump administration was that the cost was “almost entirely passed on to domestic consumers”.

Speaking in a video interview for the IFS website, he said: “It wasn’t a reduction in the prices that foreigners were charging to enter the US market—it was an increase, almost one for one with the tariff rate, for domestic consumers.”

Tariffs are collected by the customs authority of the country where the goods are being imported into. In the US, they’re paid to the Customs and Border Protection agency at ports of entry across the country, although Mr Trump has suggested he may create an External Revenue Service to collect tariffs. In the UK, tariffs are collected by HM Revenue & Customs.

Where else might be targeted?

Although Mr Trump appears to be using tariffs as political leverage to some effect—both Mexico and Canada have agreed to improve border security in exchange for their 30-day reprieve—the president also has an eye on the US economy.

He is eager to address the US trade deficit, which is what occurs when you import more goods from another country than you export in return. The US has substantial trade deficits in goods and services with China and Mexico, and a smaller one with Canada. 

He also appears to be looking at the trade deficit between the US and EU, which was $131 billion in 2022 in the EU’s favour. He has warned tariffs could be imposed on EU imports “pretty soon”, saying: “They don’t take our cars, they don’t take our farm products. They take almost nothing, and we take everything from them. Millions of cars, tremendous amounts of food and farm products.”

Will the UK be hit by tariffs?

As the UK is no longer part of the EU, it will not be directly affected by any tariffs imposed on the bloc, but it could in theory be subject to its own tariff regime imposed by the US. Analysis by the Centre for Inclusive Trade Policy suggests a hypothetical 20% tariff on all UK exports to the US could mean a £22 billion drop in exports, hitting sectors such as fishing and mining especially hard.

However Donald Trump has suggested that the UK might not be subject to tariffs, telling the BBC on Sunday: "The UK is way out of line but I'm sure that one… I think that one can be worked out."

One reason the UK might not be subject to tariffs is the nature of our trading relationship with the US. 

Most British exports to the US are in the form of services, such as finance, insurance and consulting, rather than goods. In 2023, the UK imported £57.4 billion of services from the United States (19.5% of all services imports) and exported £126.3 billion of services (27.0% of all services exports).

That same year the UK imported £57.9 billion of goods from the US, which accounted for 10% of all goods imports, making the US our second largest import partner, behind only Germany. There were £60.4 billion of goods exports to the US making it our largest export partner, accounting for 15.3% of all goods exports.

The question of whether the UK overall has a trade surplus with the US is a complicated one, because of different sets of data.

The Office for National Statistics reports that the UK ran a trade surplus with the US of £71.4 billion in goods and services in 2023. However, according to US figures, the trade surplus was actually in the other direction, with the US reportedly running an overall trade surplus with the UK of $14.5 billion. 

The figures differ in part because while the US Bureau of Economic Analysis includes trade with Jersey, Guernsey and the Isle of Man in the UK data, the ONS does not. This allows both countries to report a trade surplus with each other, which means the UK government can use the US figures to argue that no tariffs should be imposed. 

Both countries are aware of the discrepancy and are said to be working to harmonise their calculations. 

The economist Julian Jessop, a fellow at the free market think tank the Institute of Economic Affairs, told Full Fact: “While there are no winners in a trade war, the British economy should be hit less hard than many others.

“More than two-thirds of our exports to the US are services, which will be largely unaffected by any new tariffs. There is also a good chance that President Trump will be willing to treat the UK more favourably than China, the EU, Mexico or Canada, with whom the US runs large deficits. In contrast, the US data show a small surplus in goods trade with the UK.”

If the UK isn’t subject to US tariffs, tariffs imposed on other countries may still have a significant indirect impact on our economy, however.

The IFS’ Peter Levell said: “Even if the UK isn’t directly affected by these tariffs… we’d still be very much affected by them. For example, if there’s a German manufacturer that exports to the US and now has to pay a tariff and that purchases its inputs from some UK suppliers, those UK suppliers are going to be affected by the tariffs affecting Germany. 

“At the same time UK producers might buy things from US producers that might see their cost rise as the results of these tariffs on their inputs, and that might introduce inflationary pressures to the UK.”