(qlmbusinessnews.com . Mon 17th Feb, 2025) London, UK —
Trump's Tariff Threat: VAT Inclusion Sparks UK Business Concerns
London – British businesses are bracing for potential trade turmoil following pronouncements from across the pond. The unexpected inclusion of Value Added Tax (VAT) in the calculation of proposed “reciprocal tariffs” has raised alarm bells across the UK, sparking fears of a significant hit to key export sectors.
Donald Trump has instructed his administration to devise tariffs targeting individual countries based on their trade arrangements with the United States. While the UK's existing relationship with the US had previously suggested a degree of protection, the addition of VAT to the equation has thrown a spanner in the works.
Analysts suggest that UK exports could face tariffs of 20% or more, potentially mirroring those levied on the European Union. The British Chambers of Commerce (BCC) has identified cars, pharmaceuticals, and food and drink as particularly vulnerable sectors. These sectors could be significantly impacted by the measures, which were announced by the White House on Thursday.
The US administration's move is framed as retaliation for “unfair or harmful acts, policies or practices,” with a particular focus on countries with a trade surplus with the US.
The UK and the US both claim to have a trade surplus with each other but there is uncertainty surrounding whether Trump would exempt the UK from tariffs, but the introduction of Value Added Tax (VAT) into the equation complicates matters.
VAT, a standard tax of 20% in the UK applied to most goods and services, is now being viewed by some in the US as a “discriminatory” tax.
George Saravelos, global head of FX research at Deutsche Bank, warned that the inclusion of VAT could result in British businesses facing charges of up to 21% on exports to the US.
William Bain, head of trade policy at the BCC, acknowledged the UK's relative “level of insulation” compared to countries with higher export volumes to the US. However, he cautioned that the proposals would “create more cost and uncertainty” and “upend established trade norms.”
Fiona Conor, managing director of Trust Electric Heating, a Leeds-based radiator manufacturer with US expansion plans, expressed concern about the potential impact on her business. While reluctant to pass on tariff costs to customers, she is considering establishing US production to take advantage of tax breaks. She urged Prime Minister Sir Keir Starmer to strengthen the UK's partnership with the US and be “strong negotiators.”
Paul Ashworth, chief UK economist for Capital Economics, highlighted the debate around VAT's discriminatory nature, noting that some advisors in the US view it as a “form of discriminatory tariff” given the lower sales taxes in some states.
Caroline Ramsay, partner and head of international trade at law firm TLT, stressed the “difficult to predict” nature of the situation, emphasizing that the term “reciprocal” should not be taken at face value.
The UK government has adopted a cautious approach, with a senior government minister stating they will “digest” the announcement and assess its potential impact before taking action.
Mr Bain argued it was “vital” that the UK government negotiated with Trump and did not get “sucked into a trade war of tit-for-tat tariffs”.
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