Trump’s tariffs are set to remain in place, and although the UK has secured a so-called preferential deal, the costs for British industry are likely to be significant.

In the year to the end of Q4 2024, UK exports to the United States totalled £196.3 billion. Leading export sectors included cars, mechanical power generators, and pharmaceutical products.

The automotive sector is particularly exposed. While premium vehicles may be able to absorb a 10 percent tariff, mass-market models will face more difficulty. UK manufacturers are unlikely to find alternative export markets of comparable scale, meaning any fall in US sales is likely to lead directly to a drop in output. This would in turn affect employment. Jaguar Land Rover alone sends 25 percent of its production to the US and employs more than 10,000 people in the UK. A 10 percent tariff will not be easy to absorb and could have real consequences for jobs and production volumes.

The pharmaceutical sector also faces uncertainty. The US market is vital for UK drug exports, but the National Health Service pays far less for medicines than is charged in the US. This pricing gap could come under scrutiny, especially as Trump has previously expressed frustration over such differences. With 73,000 people employed in the UK pharmaceutical industry and 23 percent of its exports going to the US, the impact of any change in trade terms could be significant. The sector is still adapting to the post-Brexit environment, and added trade friction will only increase pressure.

Steel is one area where the UK has avoided major disruption. Proposed US tariffs of 25 percent on steel have not been applied to the UK, which is a welcome relief. Had they been implemented, it could have rendered UK steel production uneconomical, raising both economic and national security concerns.

Given the challenges ahead, there is a clear need for a strong and cohesive UK industrial strategy. Key export sectors that also employ large workforces will likely require support, whether through direct subsidies, tax incentives, or transition assistance.

There is, however, a silver lining. One side effect of Trump’s broader economic policies is a weakening US dollar. As his administration pursues protectionist policies, investor confidence in the dollar has declined. This trend is expected to continue, leading to a stronger pound relative to the dollar. Some analysts project the GBP/USD exchange rate could reach 1.4, a level not seen in five years.

A stronger pound brings several advantages. First, it reduces the cost of dollar-denominated commodities such as oil, helping to ease inflationary pressures in the UK. Second, a stronger pound encourages global investors holding dollar assets to shift into other currencies. As one of the world’s leading capital markets, London could benefit significantly. This would improve funding access for UK businesses, providing a deeper pool of capital for growth and investment.

UK consumers could also gain. A stronger pound means US goods become cheaper in the UK market, from clothing to electronics. This could boost consumer spending and provide a lift to the retail sector.

Finally, Trump’s tariff push has created an opening for a broader UK-US trade deal. With the UK now closer to the front of the negotiating queue, there is potential to include services in a future agreement. The UK is well-positioned to benefit. Lower relative employment costs, combined with a strong regulatory and technological infrastructure, make it an attractive destination for outsourcing customer support and similar functions. Unlike offshoring to distant countries, the UK offers high-quality services with minimal friction for US firms.

In conclusion, while Trump’s tariffs are likely to disrupt key UK industries in the near term, the longer-term opportunities could be substantial. If the UK can secure deeper trade ties and leverage currency shifts, the net impact may ultimately be positive.

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