Risk of rising US prices could be biggest brake on Trump's tariff plan

Taken at face value Donald Trump’s embrace of reciprocal tariffs is a declaration of total trade war, that would amount to perhaps the single biggest peacetime shock to global commerce.

In promising to levy import taxes on any nation that imposes tariffs or VAT on US exports, he is following through on a campaign promise to address a near trillion dollar trade deficit – the difference between the value of America’s exports and its imports – that he believes amounts to a tax on American jobs.

In response, he wants to deploy tariffs as an “external revenue service”, simultaneously easing the US deficit and, so the theory goes, pricing out imports in favour of domestic production.

Follow latest: Trump’s trading tariffs

With a promise to reestablish industries, from chip production lost to Taiwan, and car and pharmaceutical manufacturing to Europe, he is promising a country-by-country tailored assault on the status quo.

Risk to Britain remains uncertain

His primary targets appear to be the major trading partners with whom the trading deficit is greatest.

Mexico and Canada, the European Union (whose 10% tariff on US cars is a particular irritation), as well as the ‘BRICS’ nations – Brazil, Russia, India (which imposes 9% tariffs on US imports), China and South Africa.

What it means for the UK will not be certain until the details are revealed in April, but it is a blow to the emerging view in Whitehall that Britain might wriggle through the chaos relatively unscathed.

To begin with, the US runs a trade surplus with the UK – in a quirk of statistics, the UK thinks it has a surplus too – and Brexit has placed it outside the EU bloc with the ability at least in theory to be more agile.

The UK also imposes direct tariffs on very few US goods following a deal in 2021, brokered by then trade secretary Liz Truss, that removed tariffs on denim and motorcycles bound for Britain, and cashmere and Scotch whisky heading the other way.

But we do add VAT to imports, and Mr Trump’s threat to treat the sales tax as a tariff by another name will chill British exporters.

Tariffs set to raise prices in US

Analysts have estimated tariffs could add 21% to the cost of exports, amounting to a £24bn blow to national income.

Pharmaceuticals, cars, chemicals, scientific instruments and the aerospace industry – the main components of our £182bn US export trade – will all be potentially affected.

But the pain will certainly be shared.

Tariffs are paid by the importer, not the exporter, and even Mr Trump accepts they will be inflationary.

Rising prices on Main Street could yet be the biggest brake on the president’s tariff plan.

This article was originally published by Sky.com. Read the original article here.

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