Since the establishment of the Bretton Woods system in 1944, the prevailing economic doctrine in the Western world has been one of reducing trade barriers to stimulate growth. The decision by the world’s largest economy to unilaterally impose sweeping tariffs marks a significant departure from this principle, with potentially profound consequences for global markets. No economy will remain unaffected. Against this backdrop, what are the plausible scenarios for the United Kingdom?

Best-case scenario: The British government, working urgently behind the scenes, secures a swift exemption or preferential arrangement. While the United States has insisted that its universal tariff regime will apply indiscriminately at the outset, officials have also signalled a willingness to negotiate. Given the UK’s relatively balanced trade position, there is a possibility that tariffs could be diluted or removed without substantial concessions. From an American perspective, maintaining close economic alignment with Britain could serve broader strategic objectives.

Moderate scenario: The UK is compelled to make difficult trade-offs to secure a deal. The most likely concession would involve scaling back or abolishing the digital services tax—a measure that disproportionately affects US technology giants. With a Labour government poised to implement fiscal tightening, the optics of reducing taxation on American billionaires could prove politically challenging. However, if the alternative is blanket tariffs, the cost of compliance may be deemed a lesser evil. As a net importer, Britain already spends more on goods and services than it earns, necessitating capital inflows through asset sales or increased borrowing. With UK government debt at historically high levels, any additional strain could prompt bond markets to demand higher yields, exacerbating fiscal pressures.

Challenging scenario: Washington remains firm, conditioning tariff relief on a reduction in the UK’s value-added tax (VAT). While tariffs and VAT serve distinct economic functions, the US argument hinges on the notion that lower VAT rates boost consumption, thereby increasing imports and exacerbating trade imbalances. Given that the UK is unlikely to cede control over its tax policy, its best hope lies in its broadly neutral trade position, rendering the US demand moot. However, should the US refuse to compromise, tariffs may persist indefinitely.

Worst-case scenario: If Britain fails to negotiate a resolution and retaliates in kind, a full-fledged trade dispute could ensue. The consequences of such an escalation are difficult to predict, but given that services constitute the UK’s primary export to the US, the most severe outcome would be the imposition of licensing requirements or punitive tariffs on UK service providers. This could mirror Switzerland’s recruitment sector, where licensing is contingent on establishing a domestic presence. For UK businesses engaged in US-facing recruitment and other professional services, such measures could necessitate onshore incorporation, a scenario that would align with the protectionist agenda of the current US administration.

For firms operating in sectors vulnerable to regulatory barriers, particularly recruitment, these developments warrant close attention. Many UK-based recruiters place candidates in the US market, and any escalation in trade restrictions could directly impact their business models. Should licensing requirements or service tariffs emerge, UK firms may be forced to establish a formal US presence to maintain access—precisely the outcome that protectionist policymakers in Washington seek to achieve.