American businesses aren’t alone in their dour assessment of the impact from President Trump’s numerous tariffs and the resulting international retaliation: The escalating trade conflict is one of the reasons U.K. businesses trimmed this year’s economic growth forecast to the lowest since 2009.
The British Chambers of Commerce now expect the country’s gross domestic product to widen just 1.3 percent, 10 basis points lower than a previous projection and the lowest since the global financial crisis, a decline exacerbated by voters’ abrupt decision in 2016 to leave the European Union trading bloc.
“A messy departure from the European Union would likely slow U.K. gross domestic product growth further over the medium term,” Suren Thiru, head of economics for the chambers, said Monday. “The prospect of an escalating trade war is now a key downside risk to our forecast as it could mean much weaker export and business investment growth.”
As Prime Minister Theresa May’s government negotiates terms for the country’s exit from the European Union, which Britain waged a decades-long struggle to join, London is also grappling with Trump’s tariffs of 25 percent on steel and 10 percent on aluminum as well as the possibility of 25 percent duties on automotive tariffs.
The levies created a contentious environment at the recent Group of 7 summit in the Canadian province of Quebec, where May and other European leaders expressed their displeasure with Trump’s decision.
The White House responded in kind, refusing to sign off on a communique from the meeting and blasting Canadian Prime Minister Justin Trudeau for reiterating his concerns that the U.S. was penalizing some of its oldest allies and refusing to be “pushed around.”
While the existing free-trade system needs improvement to make sure some countries and peoples aren’t left behind, that can’t be achieved by taking “unilateral action against your partners,” May told the U.K. Parliament after returning from the meting.
Although the European Union — of which Britain remains a member for now — will respond to American trade tactics in kind, “we need to avoid a continued tit-for-tat escalation,” she said.
“That is why it was right that we had such an open and direct discussion at this summit and why, as a champion of free trade, the U.K. will continue to support a constructive dialogue,” May said. “As long-standing allies we do not make progress by ignoring each other’s concerns, but rather by addressing them together.”
That’s a stance that may prove pivotal to her European negotiations. Britain’s departure from the bloc, and the likely loss of passporting privileges that enable companies with a license from one EU nation to do business in all of them, have already prompted many global banks to move staff and offices out of London, which had become a world financial capital.
The FTSE 100, a benchmark of the London Stock Exchange’s 100 largest companies, has fallen 0.7 percent so far this year, while the widely watched Standard & Poor’s 500 in the U.S. is up 4 percent, after paring pre-tariff gains.
U.S. banks and other companies, which were surprised by the Brexit vote in mid-2016, have also been caught off guard by some of the White House’s protectionist trade policies this year.
Concerns that Trump may spark a damaging trade war by imposing duties on both allies and China, the world’s second-largest economy, at the same time, have kept U.S. stock markets well below their January 2016 highs and spurred criticism from some lawmakers in the president’s own party.
“Ill-conceived trade actions that weaken the American economy, alienate allies, and invite retaliation against American businesses, farmers, and ranchers, undermine our nation’s ability to successfully confront China’s unfair trade policies,” said Sen. Orrin Hatch, the Utah Republican who chairs the chamber’s Finance Committee, which is holding a hearing on the latest round of tariffs later this week.
Those duties of 25 percent on $50 billion of Chinese imports, imposed on Friday, will hurt both American and Chinese consumers, he said, rather than resolve legitimate concerns about China’s theft of American intellectual property.
If the levy announcement signals the start “of a coherent strategy that produces real change in China, I welcome it,” said Sen. Ron Wyden, the panel’s highest-ranking Democrat. “But like other Trump trade actions, I’m concerned it was more impulsive than strategic. Since the president took office, China has only imposed more trade barriers. North American Free Trade Agreement talks are on life support. Our closest allies are questioning the relationship, and American exporters are facing retaliation all over the world.”
Still, some businesses remain optimistic that the White House will manage to avoid trade moves that cause any significant damage.
“While the administration clearly views tariffs as a viable and effective policy tool, the president will shy away from actions likely to escalate to a full trade war,” said Seth Carpenter, an economist with Swiss bank UBS.
“Although bellicose trade language has been rampant, actions taken to date,” including the China tariffs, “have been relatively modest,” he said. “The other countries have responded in a similarly measured manner, roughly matching the dollar value of U.S. tariffs rather than escalating the disputes. Miscalibration is clearly possible, but we believe unlikely, as we see actions from the U.S. so far as steady, predictable, and professionally implemented.”
