Allianz Trade has warned that UK export growth could shrink by up to £8.5bn over two years if a full-scale trade war breaks out between the US and China.
A prolonged trade conflict between the world’s two largest economies could severely impact the UK’s manufacturing sector, according to Allianz Trade, the trade credit division of global insurance and investment management company Allianz, formerly known as Euler Hermes.
The organization warned that escalating US tariffs on China to 60% on all goods – both critical and non-critical – and 10% on imports from the rest of the world could lead to major economic repercussions. However, Allianz Trade described such a scenario as “unlikely”, and highlighted the adverse effects on the US economy itself, including a forecast of GDP growth of 1.2 percentage points and inflation rising by 0.6 percentage points by 2026.
Global trade will also feel the hit, with growth likely to slow by about 2.4 percentage points under a tariff cap scenario.
A more moderate tariff increase – raising current US tariffs on Chinese imports from 13 per cent to 25 per cent and introducing smaller increases of 5 per cent on imports from other countries (excluding Mexico and Canada) – could hold back UK export growth by about £ Sterling. 2.2 billion over two years. This will also reduce global trade growth by 0.6 percentage points, Allianz Trade noted.
Capital Economics offered a more optimistic view, arguing that the UK’s direct exposure to potential tariffs under Trump would be limited. Unlike China, Mexico or the European Union, the UK does not have a large trade surplus in goods with the US. Trade in goods between the two countries is broadly balanced, and the UK’s services exports – twice the value of its goods exports – are unlikely to be affected by tariffs.
Capital Economics has estimated that imposing a default tariff of 10 per cent on all British goods exported to the US would result in a minimal impact on UK GDP, ranging from -0.1 per cent to +0.1 per cent. This is due to the potential relief for services exports and the offsetting effect of a weaker pound, which would make British goods prices more competitive in US markets.