While Trump didn’t follow through with his promises to launch an international trade war on day one, experts are warning his return to the presidency will mean higher prices for UK consumers.
On the day he was sworn in for his second term as president of the United States, Donald Trump signed a slew of executive orders and directives covering everything from pulling out of the Paris Climate Agreement to rolling back trans and gender-identity rights, pardoning more than 1,000 January 6 rioters, and taking a predictably hard stance on immigration.
What wasn’t on the immediate agenda though were his much-trumpeted trade tariffs.
During his presidential campaign, Trump had promised to slap a 60% tariff on all goods imported into the US from China and threatened America’s nearest neighbours Mexico and Canada with 25% tariffs “from day one”.
He also proposed a 10% to 20% universal tariff on all imports into the US from all other countries – including the UK.
Some have dismissed Trump’s talk of tariffs as tactical bluff and bluster, but the president seems serious. While his avalanche of executive orders yesterday didn’t include tariffs, he mused to the world’s press that he would introduce these measures on Canada and Mexico from February 1.
The UK government will certainly hope that it can avoid Trump’s ire, and any direct tariffs itself, however, it is by no means guaranteed. Regardless, retail experts warn that the destabilisation of Trump’s policies will still hit UK retailers and customers hard.
Price rises inevitable
Retail Economics chief executive Richard Lim says any international trade war will lead to higher prices for UK consumers because of the globalised nature of international supply and manufacturing chains.
“It’s kind of inevitable,” he maintains, “any tariffs internationally are going to be inflationary and lead to higher prices for customers”.
That is the last thing UK retailers will want, particularly at a time when they are already feeling increased cost pressures domestically following the Budget.
“It’s too early to say what tariffs might be levied by the US, or what retaliatory tariffs they might create elsewhere,” says BRC economist Harvir Dhillon. “Nonetheless, the overall impact of trade barriers may be to increase global prices of goods and create inflationary pressures that could be felt globally”.
“Retailers in the UK already face significant cost pressure from the Budget this year, and further global cost pressures would be unwelcome for retailers and customers alike”.
Any tariffs on imports into the US would also represent a blow for UK retailers who are looking to break into the American market – such as JD Sports, Mountain Warehouse and Card Factory.
“This will also have impacts on retailers looking to internationalise their sales and sell products and finished goods into the US,” says Lim. “America is an incredibly large and important market for UK retailers. And these tariffs will make them less competitive when compared with locally produced products, which will have significant impact on the demand”.
Prepare for the worst
Retail Week spoke to one UK fashion brand that trades in the US and is taking the president’s threats seriously. The brand has already begun looking to diversify its supply chains away from China to countries such as Vietnam, India and others in Europe.
Despite this, there is still concern over the hit profit margins will take moving forward.
It’s not just fashion and apparel brands who are scrambling. Food prices could be affected too, one expert warns. Tariffs could hit everything from the global price of soybeans – widely used as feed for livestock – through to parts for the farming machinery used to harvest crops.
“If the price of animal feed goes up, so does the price for the cut of steak or chicken at the supermarket,” the expert says. “If the thresher is more expensive to repair and maintain, so is the wheat that goes into your bread or your cereal. It all has a knock-on effect.”
In the face of this potential global economic storm, there isn’t much UK retailers can do. “I can’t see much in the way of silver linings,” the expert warns.
“The only possible upside” he can see is that it may force a Labour government, caught in the crossfire of protectionist giants such as the US and China, to “align more closely with the EU and its single market,” although he admits “that’s more a personal hope, than one based on anything tangible”.
Retail Economics’ Lim agrees, saying there’s nothing the UK retail sector can do to influence Trump’s policymaking. All it can do is “plan for the worst, and hope for the best,” he says.
“What UK retailers can do is try to prepare for any potential changes in international trade dynamics. That preparation will come in the forms of looking at supply chains, trying to understand the potential cost implications of any increases in tariffs, and scenario planning around what they can control in terms of different components coming from different countries and where they might be exposed in terms of their exports as well.”
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