Is a trade war between the EU and USA now inevitable?
What are the implications for the UK?
With former President Trump moving to implement his policy agenda, initial measures have already been set in motion. He has declared a state of emergency at the border, leveraging his executive powers to impose tariffs on Canada, China, and Mexico, with the European Union (EU) now in his sights.
The economic impact is already being felt, as the U.S. dollar has strengthened against both the Canadian dollar and the Mexican peso, while recession risks loom for both nations. Mexico has opted for a conciliatory approach, leading to a one-month delay in tariff implementation. The Canadians have also sought to defer their implantation by agreeing to an immediate demand to militarise the border. Meanwhile, China looks to be potentially the most impacted, as the U.S. removes the ‘de minimis’ exemption for small-package imports. Previously, shipments under $800 were duty-free, allowing foreign companies—such as China’s Temu and Shein—to send large volumes of goods directly to U.S. consumers without tariffs. U.S. Customs and Border Protection processes over one billion such shipments annually, making this policy change highly consequential. China has already announced counter measures but given the trade imbalance it is unlikely that a trade war damages them significantly more.
Trump has also announced plans to impose tariffs on the EU, which is already experiencing economic stagnation. Unlike the 2018 tariff measures on Chinese and EU imports, this time Europe faces the added challenge of an influx of diverted Chinese goods. The growing sophistication and volume of Chinese exports are intensifying global competition. Whereas both the EU and China accounted for approximately 16% of global exports six years ago, by 2023, China’s share had increased to 17.5%, while Europe’s had declined to 14.3%, according to European Commission data.
Trump has proposed across-the-board tariffs ranging from 10% to 20% on all trading partners. According to the German Economic Institute (IW), a potential trade war could cost Germany €180 billion over four years, reducing GDP by 1.5%. For the EU, which currently maintains a trade surplus with the U.S., estimates suggest the economic impact could range between 0.5% and 1% of eurozone GDP. Unless the EU takes measures to address longstanding U.S. concerns regarding trade barriers—such as those affecting American automotive exports—tariffs appear inevitable.
Despite resistance from France, which has been advocating for closer UK-EU alignment post-Brexit, the UK may unexpectedly benefit from a U.S.-EU trade conflict. The UK is unlikely to face similar tariffs, which could lead to several economic advantages:
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- Strengthening of the British pound against the euro, reducing import costs and mitigating inflationary pressures.
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- Increased retail activity in London, as European consumers seek to purchase American goods tariff-free in the UK, boosting the local economy.
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- Potential for an enhanced UK-U.S. trade agreement, reducing costs for British consumers and benefiting UK businesses operating in American markets.
For the EU, this situation represents a critical test, as it navigates concurrent economic and geopolitical pressures from the U.S., China, and Russia. Its response will shape the region’s economic landscape for the foreseeable future—whether it emerges stronger, remains stagnant, or fractures under the weight of these challenges. Without the UK as an internal balancing force, the EU may struggle to formulate a cohesive strategy. Meanwhile, the UK appears poised to operate between the economic spheres of both the U.S. and the EU. Its long-term economic success will depend on its ability to remain a leader in technological innovation and global business competitiveness.
And despite the downward pressure created by the last budget, it is noteworthy that so far this year, there have been more professional vacancies in the STEM related sectors than in 2024, and with the latest initiatives announced by the Government, this looks to be an area set to grow this coming year, with investments into IT, energy, defence and infrastructure a central part of this Government’s industrial strategy.
This key topic will be a focal point at our upcoming summit on February 18. If you have not yet registered, please do so here:
The data referenced above has been sourced from Vacancy Analytics, a cutting-edge Business Intelligence tool that tracks recruitment industry trends and identifies emerging hotspots. With 17 years of experience, we have a deep understanding of market activities in the UK and globally.
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