David Williamson, Finance Director at outdoor clothing company Montane, which has been trying to break into the US market, is not enthused by the prospect of new tariffs on US imports: “This is another obstacle and challenge to face. For us, looking to get goods into the US, the US outdoor industry market has been a challenge.”

Williamson says the market has been flooded with inventory and some retailers are facing difficulties, which he says has “served those that are trading through to take less risks on smaller overseas ‘challenger’ brands, and double down on the bigger, more established, often North America-based household names”. 

Just days after President-elect Trump won the US election, he doubled down on his campaign pledge to introduce tariffs. Trump’s apparent aim with the introduction of such sweeping tariffs is to cut taxes and pay down government debt. Others, however, suggest that any gains to individuals will be wiped out by the rising prices of consumer goods.

Nonetheless, Trump continues to suggest that he will impose tariffs of 10% to 20% on all imports, with additional tariffs of 60% to 100% on selected goods specifically brought in from China.

Ian Worth, Customs Director, Crowe, says: “There’s no reason to believe that [tariff rises] won’t happen. I think it would be very risky not to prepare for it happening. It’s by no means absolutely certain, but we’re dealing with someone who’s got a track record of being quite volatile.”

Global trade has dipped in recent years, due to the pandemic, the Ukraine war and ensuing energy crisis, and also shipping challenges in the Red Sea. All of this has combined to increase costs and slow down supply chains. 

This year, it looked as if global trade was returning to positive levels. Global trade was expected to rebound after a 1.1% decline in 2023. In the first quarter of 2024, the value of trade in goods increased by about 1%. 

The International Monetary Fund said that the annual growth rate of world trade in 2024 was forecast to reach 3.5% and 3.3% for 2025. That, of course, may change if US tariffs are introduced.

Given that the world should expect Trump to be true to his word, exporters should start to consider their options to counter any negative impact from a rise in US tariffs.

Worth says: “Against that backdrop, UK exporters are going to see an increase in cost for their customers in the US. And bear in mind that the planned intention behind these measures is to encourage US consumers to buy US products rather than importing. That’s why the tariffs are going in. It’s a means of stimulating US manufacturing.”

Montane is one of those companies that is now looking to other geographies as an alternative to the tougher US market. “Any likely tariff increase is only going to exacerbate the situation by making trade with the US more difficult, and likely re-emphasise our strategy to target a wider geographical spread of exports and not place any reliance on the US,” says Williamson.

This is already happening with Chinese electric vehicle (EV) companies. China’s largest manufacturer of EVs, BYD, is due to start production in Hungary. Another Chinese EV maker, Xpeng, is also considering a European plant for its EVs. It’s not just EVs either. Telecom equipment manufacturer Huawei is planning to build a factory near Paris this year, with operations planned to start by the end of 2025. 

Any business with a significant US market may find it beneficial to set up operations in the US, but smaller companies will find it harder. “If push comes to shove, look for alternative markets. Don’t continue losing money by swallowing those costs,” Worth says.

Besides seeking out other export markets, which isn’t a simple alternative, exporters could entirely skirt the problem of tariffs by setting up sites in the US, says Worth. “One of the things we would expect to see, and I think it’s already under way, is moving assembly and production operations into the US to supply customers directly in the US market.”

Retaliatory tariffs are also possible. Trump has a track record of taking such aggressive action. Remember the 25% tariff on all single malt Scotch whisky imports in 2019? The UK was still part of the European Union back then, so the EU retaliated with tariffs on Levi’s jeans and Harley-Davidsons.

Worth says: “We could see a return to that sort of activity with new Trump tariffs, against specific products, then we could probably see a tit-for-tat retaliation measure both from the EU and from the UK. The end consumer ultimately bears the cost.”

The US is the UK’s biggest export market. Official figures show that total UK exports to the US totalled £188.2bn in the four quarters to the end of Q2 2024. However, most of our exports are in services, and not goods.

Suren Thiru, Economies Director, ICAEW, says: “New US tariffs would be damaging, but not terminal for the UK economy overall, given that the majority of UK exports to the US are services, which would be largely unaffected by tariffs on goods. However, the damage to the global economy from possible retaliation from other countries in tit-for-tat trade tariffs would notably weaken UK growth, partly through higher inflation.

 “Even though UK interest rates have further to fall, the upward pressure on inflation from growing global risks, including possible new US tariffs, could mean that policy is loosened more modestly than many anticipated.” 

Alternatively, Trump could lean on other countries to follow suit, in particular against China. “We’re already seeing that with Canada, where Canada has imposed high tariffs on electric vehicles and electric vehicle parts from China. And the EU has imposed additional duties on EVs from China,” Worth says.

It won’t be clear until early next year if and how Trump will act on his tariff pledges. It may only end up being a short-term gain for him and his supporters, however. Research by Frankfurt School of Finance and Management suggests that such tariffs could inadvertently reduce manufacturing investment.

“Protectionist trade policies, such as tariffs, have been a central topic throughout the US election campaign, aligning closely with Trump’s ‘America First’ doctrine,” says Thorsten Martin, Associate Professor of Finance at Frankfurt School of Finance & Management. 

“While such policies may offer short-term protection for some domestic industries by limiting foreign competition, our research shows they can backfire by increasing input costs essential for production,” Martin says. “Ultimately, this effect tends to outweigh the benefits, making tariff increases on production inputs a hindrance to manufacturing investment.” 

Despite the lack of clarity, exporters can and should consider their options now in preparation of potential changes or they could find themselves facing punitive export costs. Disruption, it appears, continues, for now.<