The UK may be spared the worst effects of Donald Trump’s proposed tariffs on global goods trade because of its economic reliance on services rather than goods, according to Andrew Bailey, governor of the Bank of England.
Trump proposed imposing tariffs of up to 60% on Chinese exports to the United States and 20% on imports from other countries. Economists warn that such measures could lead to a global inflationary spiral, but Bailey noted that the UK economy was uniquely placed to withstand the impact.
“The UK is an open economy, but it is also true that more of our trade is in services rather than goods – tariffs do not work in the same way on services,” Bailey said. Services now account for 54% of UK exports to the US, including finance, insurance and education, which have grown significantly since Brexit. Unlike goods, services are subject to non-tariff barriers such as regulatory differences, which are less affected by tariffs.
Bailey acknowledged that the ultimate inflationary impact of tariffs remains uncertain, depending on how other countries and exchange rates react. However, he highlighted that the UK is less vulnerable than economies such as Germany or Italy, which have a larger trade deficit with the US.
Swati Dhingra, a trade economist and external member of the World Bank’s Monetary Policy Committee, recently noted that tariffs may have deflationary effects, as producers may lower prices to maintain market share in large economies. This contrasts with concerns about tariffs leading to higher consumer prices.
Other central bankers, including Christine Lagarde of the European Central Bank, also downplayed the inflationary impact that tariffs would have on economies outside the United States.
Bailey’s comments come amid a slight rise in UK inflation above the bank’s 2% target. While inflation is expected to stabilize, he noted that uncertainty remains about how businesses will respond to the government’s upcoming increase in National Insurance contributions.
As Britain overcomes these challenges, the country’s reliance on services and less exposure to tariffs on US goods may provide a degree of economic resilience in the face of rising global trade tensions.