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Donald Trump’s preferential treatment of British exports gives the country’s firms a competitive advantage that could protect the economy from the worst of Washington’s trade war, according to economists.

Trump put a 10% duty on all imported UK goods, the lowest rate available, as part of his “Liberation Day” tariffs on America’s trading partners, a move that crashed markets and threatens to upend the entire global trading system. 

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But experts said the UK is among those best-placed because the lower tariffs give its manufacturers a competitive advantage and the government is in a good position to secure a deal with the US for further reductions in the levies. 

David Waine, managing director of ConMech, a specialist steel engineer in the north west of England, told BBC Radio on Thursday that while “for many industries it’ll be quite worrisome, for ourselves it presents an opportunity” because ConMech’s products will now be cheaper in the US than those of overseas rivals.

“We should actually be more competitive in the US market than we’ve been for a number of years,” he said. Trump wants to build up domestic US industry but that will take some time and America will still need imports. 

The government is in talks with the US about a targeted trade agreement to lower the 10% baseline rate or bring the 25% tariff on UK steel and cars down toward 10%. Options on the table include dropping UK tariffs on US agriculture, scrapping the digital services tax on US tech companies and agreeing new regulations around technology.

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Alan Winters, a trade expert and emeritus professor at the University of Sussex, said the direct impact of the tariffs on the UK would be small. “If someone hits your rivals harder than they hit you, you get a competitive advantage,” he said. “If we get a trade agreement with the US we could even get gains.”

Sussex’s Centre of Inclusive Trade Policy estimated in a paper on Friday “modest losses for the UK” of 0.1%-0.3% from GDP. If the UK can strike a deal with the US, the economy will “make a positive gain of 0.1%.” The US will “suffer more than any other country” from its own measures, the paper added.

Britain has “one of the best chances of coming away with a deal” that could see tariffs on UK goods reduced due to its balanced trade with the US and Prime Minister Keir Starmer’s solid relationship with the president, Mats Persson, head of macro strategy at EY Parthenon, said. “In the short term, there is so much uncertainty but you can see how the pieces might eventually fall that make the UK more competitive.”

‘Potentially Advantageous’

Britain’s 10% levy makes it the biggest goods exporter in the world to have the baseline tariff. China faces a 34% tariff and has retaliated in kind. EU countries have 20% and South East Asian exporters were badly hit. Mexico and Canada were excluded as separate arrangements are in place.

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Trump told reporters on Thursday he believed Starmer “was very happy about how we treated them on tariffs.”

While recognizing the immediate fallout will be damaging, Raoul Ruparel, director of Boston Consulting Group’s Centre for Growth, said the relative effect of the preferential duty “is potentially advantageous and may have some positives for the UK, particularly if other countries retaliate and the UK does not.” 

Ruparel added that trade diversion into the UK of goods that would have gone to the US may bring down prices and allow the Bank of England to cut interest rates more quickly. “At the moment the tariffs look like being more disinflationary than inflationary for the UK, that’s helpful for living standards and borrowing costs,” he said. “It’s not all bad for the UK economy.”

Markets responded to Trump’s tariffs by predicting that the BOE would cut rates three times this year, having previously expected just two.

The International Monetary Fund has warned of a “significant risk” to the world economy and Bloomberg Economics has estimated that the direct impact of tariffs on UK exports could knock as much as 0.4% off GDP. 

Persson said there was “potential upside for some UK businesses and the UK itself in the medium term” but he cautioned that any potential gains could be blown away by a global slump caused by the trade shock or ongoing uncertainty.

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