Trump tariffs will damage UK economy, Reeves tells Cabinet amid job loss fears

Prime Minister Sir Keir Starmer acknowledged the UK was unlikely to be spared on Tuesday, despite the close transatlantic relationship and efforts to strike a limited trade deal.

The acknowledgement of the US president’s import tax plan comes as experts claimed consumers could be spared from price rises but job cuts could worsen for some of the hardest-hit firms.

Mr Trump will unveil sweeping tariffs on goods from around the world on Wednesday, an event he has dubbed “liberation day”.

The UK appears unlikely to respond with immediate retaliatory measures, unlike other targets of Mr Trump’s sanctions, such as the European Union.

Sir Keir said businesses want a “calm and collected response to this, not a knee-jerk” and “nobody wants to see a trade war”.

But he said that “all options remain on the table” in response.

Asked if he had been “played” by Mr Trump amid efforts by Sir Keir to build a good relationship, the Prime Minister said: “The US is our closest ally.

“Our defence, our security, our intelligence are bound up in a way that no two other countries are.

“So it’s obviously in our national interest to have a close working relationship with the US, which we’ve had for decades, and I want to ensure we have for decades to come.”

The Government hopes to strike a limited trade deal with the US which could ease tariffs.

Sir Keir said talks on a UK-US economic deal would normally take “months or years” but “in a matter of weeks we have got well advanced in those discussions”.

It is unclear what Mr Trump will announce on Wednesday, but his administration views the application of VAT rate as discriminating against US goods and could respond with a 20 per cent tariff on imports from the UK.

Mr Trump has already announced a 25 per cent import tax will be introduced on all cars imported to the US, a measure which will be a blow to the UK’s automotive industry.

Some 16.9 per cent of UK car exports were to the US last year, representing a total of more than 101,000 units worth £7.6 billion. Tariffs on steel and aluminium imports, including from British firms, are already in place.

Elsewhere, experts warned tariffs could impact both businesses and consumers.

Matt Swannell, chief economic advisor to the EY Item Club, said: “US tariffs on goods imports from the UK could rise tomorrow, with survey respondents indicating that the possibility of higher tariffs is already weighing on demand for exported goods.”

He said the prospect of tariffs, coupled with weak domestic demand, is “seeing the sector cut jobs”.

Myron Jobson, senior personal finance analyst for Interactive Investor, said: “President Donald Trump’s tariffs war could have far-reaching consequences for Britons, even if the UK manages to escape direct levies.

“If tariffs contribute to higher inflation, central banks may be forced to tighten monetary policy, which can weigh on bonds and borrowing costs.

“This could impact everything from mortgage rates to corporate investment, potentially slowing economic growth.

“For investors with exposure to US equities – either directly or through pension funds and ISAs – this could translate into market turbulence.”

It comes as the Conservative leader Kemi Badenoch claimed a trade deal is the “best way” to avoid tariffs and that retaliation will “make everyone poorer”.

She told LBC: “A trade deal is the best way but it has to be something significant and comprehensive, not just a deal that tinkers at the margins in easy areas.

“Some people will want us to have trade retaliation, that just makes everyone poorer.

“This is a time for significant diplomacy and showing that actually, if you put tariffs on, the people who will suffer aren’t just our exporters but also the American consumer who will have to pay more.”

Responding to the threat of tariffs, opposition parties urged the UK Government to seek closer ties with Europe.

Scottish Green co-leader Lorna Slater said: "The attempts to praise and flatter Donald Trump have not worked. He is not our friend or ally and he never will be, no matter how much Keir Starmer pretends otherwise.

"We need to stand up to the Trump administration and it's racist, reactionary and Putin-appeasing policies. We can't simply wait for them to hammer us even more and praise them while they are doing it.

"Scotland's future can and must be with a closer Europe. We should be looking to expand our trading ties with our neighbours and with countries like Canada that are also being targeted by the US.

"If Keir Starmer wants to send a message to the White House then the first thing to do is cancel the state visit and make clear that Donald Trump and the politics he represents are not welcome here."

Concerns were also raised by the Scottish Lib Dem MP Alistair Carmichael.

The Orkney and Shetland MP told The Scotsman: “Suggestions have been made that opening up our food markets to US produce – chlorinated chicken and hormone-treated beef – could be the price for an exemption to Trump’s tariffs. It is a concession that no previous government has dared to make and I cannot believe that this government would be foolish enough to try. If they do, however, then the backlash to Farage’s comments last week will look like a storm in a teacup by comparison.

“What this really points to is the need for the government to broker pragmatic agreements with the EU so that we are better insulated against these trade wars. We are better served working together than alone.”