The UK's Strategy for Navigating US Tariffs and Building a New Global Trade Order

The United States concludes the week with tariffs exceeding those of the Smoot-Hawley laws, which contributed to the Great Depression. The historical precedent suggests that economic downturns in America often have a ripple effect, impacting Europe. This current tariff situation is expected to negatively affect employment, wages, and the overall economy. A new strategy is needed to navigate this economic challenge. However, this crisis could also present an opportunity for growth.

The week was marked by significant economic shifts. The President's actions triggered a sharp decline in global markets, resulting in substantial financial losses. While not as severe as the economic impacts of the COVID-19 pandemic or the Great Financial Crash, the situation is concerning.

Working families are facing uncertainty. Concerns about the future are particularly evident in industries like the automotive sector, where shipments to the US have been affected.

Over the past two weeks, the Business and Trade Committee has engaged in extensive discussions with business leaders and policymakers worldwide to determine the best course of action for free-trading nations.

Discussions with Japan, a major manufacturing nation and key UK ally, have begun to outline a strategy for addressing the trade war.

The first step is to maintain dialogue. The UK's early engagement with the US administration, prior to the American elections, has positioned it favorably among other nations seeking trade agreements. The UK possesses leverage, particularly in the technology sector, as it shares a trillion-dollar tech economy with the US.

Secondly, while preparing for potential responses, caution is advised regarding retaliatory measures. The Office for Budget Responsibility has warned that retaliatory tariffs could exacerbate the economic damage.

Thirdly, the UK should lead the formation of a new Free Trade Front, comprising smaller economies that collectively represent a significant portion of global GDP.

The UK is uniquely positioned to lead this initiative. It has a distinct Brexit trade agreement with the EU and is a key member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Strengthening these alliances is crucial. A renewed relationship with the EU could involve deeper defense ties, collaboration on renewable energy, reduced export barriers, and stronger links for the services sector. Simultaneously, expanding the CPTPP, beginning with Indonesia, could open up a larger, tariff-free market. The combined economies of the EU and CPTPP are larger than the US, and the UK is well-placed to benefit from both.