Britain is at risk of a £24billion hit to the economy after Donald Trump vowed to impose tariffs on countries that charge VAT.
The US President said he would charge reciprocal tariffs ‘for purposes of fairness’, which could result in a 21pc levy on goods exported to America.
He vowed to address ‘each country one by one’ – meaning it is not yet clear what the impact on Britain will be.
The UK currently charges a 20% standard VAT for most goods and services. Trump told reporters that he views VAT as a tariff.
The National Institute of Economic and Social Research (NIESR) previously estimated that tariffs of that scale could knock 0.4 percentage points off UK economic growth for the next two years – equivalent to around £24billion.
‘I’ve decided for purposes of fairness that I will charge a reciprocal tariff. It’s fair to all. No other country can complain,’ Trump told reporters as he signed the new order putting them in place.
‘Tariffs are good, tariffs are great actually,’ he added.
William Bain, head of trade policy at the British Chambers of Commerce, said the proposals would create ‘more cost and uncertainty for investors, businesses and consumers’ after what has already been a ‘tough start’ to the year.
President Donald Trump, joined by Secretary of Commerce Howard Lutnick, signs an executive order on reciprocal tariffs in the Oval Office
The reciprocal tariffs could prove a headache for Rachel Reeves and Keir Starmer (pictured) with fears it could knock 0.4 percentage points off UK economic growth for the next two years
He warned that sectors such as automotives, pharmaceuticals and food and drink could be ‘significantly hit’ by the plans. Ministers must ‘negotiate with the US on alternative arrangements,’ he said.
‘We must make the case for pro-growth exemptions from proposed tariffs to benefit UK-US trade.’
The new tariffs will be the most sweeping since America put in place 50 per cent tariffs on all manufacturing goods in 1890.
Those tariffs were formulated by the 25th president William McKinley, who Trump has dubbed the ‘tariff king’.
He said U.S. prices ‘could go up’ due to the tariffs, amid fears of prolonged trade disputes.
Trump had hyped the order online as a signal event, using a phrase he often applies to orders he wants to highlight.
‘TODAY IS THE BIG ONE: RECIPROCAL TARIFFS!!! MAKE AMERICA GREAT AGAIN!!!’
A senior White House officials described the massive reach of the tariffs, which will extend far beyond the tariffs that other nations impose on the U.S to encompass ‘burdensome regulatory requirements’, exchange rates that lead to ‘undervalued currencies,’ and tax structures that may disadvantage the U.S.
U.S. President Donald Trump looks on as he stands in the Oval Office of the White House
President Donald Trump signed an order imposing ‘reciprocal’ tariffs on other nations
President Trump called the reciprocal tariffs ‘THE BIG ONE’ online
‘It’s patently obvious on its face that they are cheating us,’ said a senior White House.
The ‘reciprocal’ part of the tariffs taxes imports at the same rate other nations apply to U.S. exports – although the definitions being applied by the White House give Trump plenty of leeway to hike tariffs on a nation if he sees fit.
The official described how the order would take into account a series of ‘non-tariff barriers’ that the administration says hurt the U.S.
But the list of factors under consideration provide a sweeping list of reasons to slap on a new tariff.
They include tariffs, ‘unfair, discrimination or extraterritorial taxes’ including a Value Added Tax, which is common in Europe.
Trump himself said he wouldn’t tolerate the European Union’s VAT, which he called ‘brutal.’
Also considered are ‘subsidies and burdensome regulatory requirements,’ exchange rates which ‘deviate from market value’ such as ‘undervalued currencies’ as well as ‘any other practice that [U.S. Trade Representative] determines is an unfair limitation.’
The official didn’t rule out the new tariffs being lowered through negotiations – as Trump paused big tariffs he threatened to impose on Canada and Mexico.
The Trump White House argues that foreign tax systems disadvantage the U.S.
‘What we’re hoping to do is have this discussion with the nations of the world about how imbalanced the trade environment is because of the existing structures. So the President is more than happy to lower tariffs if countries want to lower tariffs. But let’s also recognize that tariffs, higher tariffs, are not the biggest part of the problem in many, if not most, cases,’ said the official.
Euro zone bond yields fell in advance of details on the move.
The trade moves come in advance of a visit by Indian PM Narendra Modi.
The tariffs are just the latest aggressive trade move by Trump, who campaigned arguing the U.S. is being ‘ripped off’ and has brushed off warnings they could contribute to inflation.
On Monday he slapped 25 percent tariffs on steel and aluminum and has put 10 percent tariffs on all goods from China, while pausing for 30 days his 25 percent tariff on Canada and Mexico, the nation’s top trading partners.
