A new report by Allianz Trade highlights the potential impact of the US-China trade war on the UK’s economy, estimating significant losses to exports.
- An escalation in trade tariffs is seen as a critical risk to the UK manufacturing sector, with potential knock-on effects globally.
- Any increase in US tariffs on Chinese imports could slow global trade growth, affecting economies worldwide.
- Despite concerns, some experts believe the UK’s direct economic exposure remains limited, offering a mixed outlook.
- Economic resilience and competitive pricing may offset potential export losses for the UK, according to industry analyses.
A recent analysis from Allianz Trade indicates that prolonged trade conflicts between the United States and China could significantly affect the UK’s manufacturing sector. The potential for increased US tariffs on China—escalating to 60% on all goods—poses a severe risk. These increased duties, although described as unlikely, could lead to a 1.2 percentage-point reduction in US GDP growth and cause inflation to rise by 0.6 percentage points by 2026.
The analysis further suggests that such tariffs could have a broader impact on global trade, potentially slowing growth by 2.4 percentage points. UK exports could face up to an £8.5 billion loss under these intensified trade conditions.
Even in a scenario of moderate tariff hikes—increasing US tariffs on Chinese imports from 13% to 25%—the UK might see a reduction in export growth by approximately £2.2 billion over two years. Global trade growth could see a reduction of 0.6 percentage points, according to Allianz Trade.
Despite these concerns, Capital Economics offers a more optimistic view. They argue that the direct impact on the UK might be limited due to the balanced trade in goods between the UK and the US. Furthermore, the UK’s service exports, which are double the value of its goods exports, should remain largely unaffected by tariffs.
A weaker pound may further bolster the competitiveness of UK goods in the US market, potentially mitigating some of the negative impacts of increased tariffs. This could help balance the economic scales, leading to a negligible effect on UK GDP, estimated between -0.1% and +0.1%.
While the threat of a US-China trade war poses risks to UK exports, strategic economic positioning may offer resilience against severe impacts.
