Why Britain lacks leverage in tariff talks with the US

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The UK has limited power to retaliate against Donald Trump’s tariffs without risking a significant economic blowback, according to data that underlines the importance of signing a trade deal with Washington.

Britain is the top buyer of a small number of American products — such as railway cars and wooden barrels — that represent just 0.4 per cent of total US goods exports, a Financial Times analysis of trade data found. 

By contrast, the EU is the primary destination for products that account for 35 per cent of American exports.

The figures underline that the UK lacks the economic leverage of larger trade powers, something on the minds of British officials as they push to finalise a deal with Washington amid fears that the upcoming EU summit on May 19 could antagonise the US president.

UK Prime Minister Sir Keir Starmer has said he intends to secure a deal with the US but has not ruled out retaliatory levies, telling business leaders that “nothing is off the table”.

But economists advise against announcing reciprocal tariffs, even if a deal cannot be struck to reduce the 10 per cent tariff on British exports to the US — and 25 per cent on steel, aluminium and cars.

“There’s no good reason on economic grounds for retaliation,” said Michael Gasiorek, director of the Centre for Inclusive Trade Policy at the University of Sussex.

“America is a much bigger market [than the UK] so you’d expect the balance of reliance to be tilted in America’s favour.”

British officials face political pressure to be seen as not “taking things lying down” but it was “extremely unlikely” that reciprocal UK tariffs would inflict sufficient pain to make Trump back down, he added.

Retaliation “will raise prices, exacerbating the cost of living crisis, which hits those already worst off [the] hardest”, said Julian Boys, associate director at the Centre for Local Economic Strategies, a think-tank.

The government recently published a list of 8,364 US products potentially at risk, which includes items such as live eels and human hair alongside traditional targets such as motorbikes and denim.

William Bain, head of trade policy at the British Chambers of Commerce, said the UK would need to consider where it could shift supply chains away from the US if it decided to retaliate.

Matching the hit to UK exports from the US policy, estimated at £8bn a year, would be a “difficult task”, he said, adding that retaliatory tariffs should “only ever be the last resort”.

The government said the US was an “indispensable ally” and talks on an economic deal between both sides were “ongoing”.

“We’ve been clear that a trade war is not in anyone’s interests and we will continue to take a calm and steady approach to talks and aim to find a resolution to help ease the pressure on UK businesses and consumers,” it added.

America holds the whip hand for nearly 96 per cent of goods it exports to the UK, according to an FT analysis of 2023 trade flows, the last full year of available data.

The analysis compared the relative reliance of British importers on product groups arriving from America, with US dependency on the UK as an export destination.

The UK’s scope to retaliate is also limited by the strategic importance of the goods where it has more leverage, for example, some critical minerals such as roasted molybdenum ores, a key input in steel manufacturing.

Britain could hit back by targeting US services but Gasiorek warned this was a “nuclear option” as it risked triggering counter measures by the US — an act of self-harm since the UK exports twice the value of services to the US than vice versa.

He said the UK could make an impact by co-ordinating action with the EU or by targeting US companies that could “bend the Trump administration’s ear”, but it would be difficult to find products that did not compromise British national interests.