UK shares joined a global plunge today amid mounting panic over Donald Trump‘s trade war – as Keir Starmer‘s hopes of avoiding tariffs dwindle.
Fears are growing that Mr Trump will hit foes and allies alike with a 20 per cent levy on so-called ‘Liberation Day’, April 2.
The president has been complaining that America is being exploited by other countries, listing VAT among the unfair foreign taxes – even though it is charged on all sales, not just imports.
The prospect of a trade war triggering a recession has been causing near-panic on global stock markets, with Asia down sharply overnight – and the FTSE 100 dropping more than 1 per cent this morning.
The Treasury’s OBR watchdog modelled a scenario of 20 per cent tariffs with retaliation last week, warning that it would spark an inflation surge and wipe 0.6 per cent off growth this year and 1 per cent in 2026-27.
Sir Keir has been trying to negotiate an exemption for the UK with a wider deal, arguing that trade between the two countries is already balanced.
However, he has already failed to head off tariffs on steel and ministers seem increasingly resigned to Britain being included, at least initially. Downing Street gave another gloomy hint today by saying talks are expected to continue beyond Wednesday.
No10 is said to be considering retaliating with extra duties on US goods such as Jack Daniel’s whiskey, Harley Davidson motorbikes and Levi’s jeans.
Keir Starmer and Donald Trump have held trade talks amid a frantic bid to dodge US tariffs
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The Nikkei 225 index was down more than 4 per cent overnight as investors took fright
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Downing Street is said to be considering retaliating with extra duties on US goods such as Jack Daniel’s whiskey, Harley Davidson motorbikes and Levi’s jeans
Sir Keir, pictured at an immigration conference in London this morning, has said the UK ‘reserves the right’ to introduce reciprocal tariffs on the US if a deal to exempt the UK cannot be reached
The US president has already announced a 25 per cent import tax will be introduced on all cars imported to the US, a measure expected to hit British luxury car makers such as Rolls-Royce and Aston Martin.
But fresh blood-letting on markets was sparked overnight as Mr Trump suggested that ‘reciprocal’ tariffs on imports will be applied globally.
That could mean a 20 per cent baseline charge on all imports, rather than individual countries being targeted based on their duty systems.
‘You’d start with all countries, so let’s see what happens,’ Mr Trump told reporters on Air Force One.
Investors responded by piling into sovereign bonds and the Japanese yen, while gold prices sored to another all-time high.
S&P 500 futures lost 0.8 per cent, extending Friday’s rout, while Nasdaq futures shed 1.4 per cent.
Mr Trump has suggested the EU is his main target, raging that the bloc was created to ‘screw’ America. Brussels has been pledging to strike back.
However, the UK currently imposes 20 per cent VAT on most goods and services.
The PM’s official spokesman said: ‘When it comes to tariffs the Prime Minister has been clear he will always act in the national interest and we’ve been actively preparing for all eventualities ahead of the expected announcements from President Trump this week, which we would expect the UK to be impacted by alongside other countries.
‘Our trade teams are continuing to have constructive discussions to agree a UK-US economic prosperity deal.
‘But we will only do a deal which reflects this Government’s mandate to deliver economic stability for the British people, and we will only act in the national interest.’
Asked whether the Government had given up hope of a deal being signed before Wednesday, the spokesman said he is ‘not going to put a time frame on those discussions’ but that they are ‘likely to continue beyond Wednesday’.
He said that the UK will ‘take a calm and pragmatic approach in our response’.
A No10 spokesman said of the call between Sir Keir and Mr Trump last night: ‘They discussed the productive negotiations between their respective teams on a UK-US economic prosperity deal, agreeing that these will continue at pace this week.’
In its outlook accompanying the Spring Statement last week, the OBR modelled the US imposing blanket 20 per cent tariffs with equivalent retaliation from partners.
It suggested that while the outcomes were ‘uncertain’, 0.3 percentage points could be added to UK CPI inflation.
Higher inflation on real incomes and slowdown in global growth was ‘likely to mean GDP quickly falls below our central forecast’.
That would reduce the 1 per cent estimate for this year to just 0.4 per cent, and wipe 1 percentage point off growth next year.
‘Even higher global barriers to trade and reduced global productivity in this scenario mean medium-term UK GDP is around 0.75 per cent lower than in our central forecast,’ the report said.
The National Institute of Economic and Social Research (NIESR) previously estimated that 20 per cent ‘reciprocal’ tariffs could knock 0.4 percentage points off UK economic growth for the next two years – equivalent to around £24billion.
That could make or break for the Government’s plans to grow the economy, after Rachel Reeves desperately tried to balance the books with spending cuts in the Spring Statement last week.
The Treasury’s OBR watchdog warned her £9.9billion headroom – historically small – could easily be destroyed by Mr Trump’s trade war.
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Mr Trump has vowed to hit foes and allies alike with levies on so-called ‘Liberation Day’, April 2
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Ministers say they could bring in their own tariffs on US imports this week. This could affect popular goods like Jack Daniel’s whiskey, Levi’s jeans and Harley Davidson motorcycles.
Sir Keir has said the UK ‘reserves the right’ to introduce reciprocal tariffs on the US if a deal to exempt the UK cannot be reached.
However, the OBR estimated that the impact of imposing reciprocal tariffs on the US would be worse for the UK than allowing the levy to go ahead unimpeded.
Abolishing or reducing the digital services tax on big tech firms, including social media companies, search engines and online marketplaces, is reportedly being considered as part of the negotiations.
Downing Street said Mr Trump passed on his best wishes to the King, who recently had to cancel engagements due to side effects from his cancer treatment.
